10-K 1 f10kyr2011.htm JOINT FORM10-K 2011 GPE & KCP&L Unassociated Document
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2011

or

[  ] TRANSITION REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______to_______

   
Exact name of registrant as specified in its charter,
   
Commission
 
state of incorporation, address of principal
 
I.R.S. Employer
File Number
 
executive offices and telephone number
 
Identification Number
         
001-32206
 
GREAT PLAINS ENERGY INCORPORATED
 
43-1916803
   
(A Missouri Corporation)
   
   
1200 Main Street
   
   
Kansas City, Missouri 64105
   
   
(816) 556-2200
   
         
000-51873
 
KANSAS CITY POWER & LIGHT COMPANY
 
44-0308720
   
(A Missouri Corporation)
   
   
1200 Main Street
   
   
Kansas City, Missouri 64105
   
   
(816) 556-2200
   

Each of the following classes or series of securities registered pursuant to Section 12(b) of the Act is registered on the New York Stock Exchange:

Registrant
Title of each class
Great Plains Energy Incorporated
Cumulative Preferred Stock par value $100 per share
3.80%
 
Cumulative Preferred Stock par value $100 per share
4.50%
 
Cumulative Preferred Stock par value $100 per share
4.35%
 
Common Stock without par value
 
 
Corporate Units
 

Securities registered pursuant to Section 12(g) of the Act: Kansas City Power & Light Company Common Stock without par value.

 
 
 
 
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Great Plains Energy Incorporated
Yes
X
No
_
 
Kansas City Power & Light Company
Yes
_
No
X
   
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Great Plains Energy Incorporated
Yes
_
No
X
 
Kansas City Power & Light Company
Yes
_
No
X
   
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Great Plains Energy Incorporated
Yes
X
No
_
 
Kansas City Power & Light Company
Yes
X
No
_
   
                         
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12
months (or for such shorter period that the registrant was required to submit and post such files).
Great Plains Energy Incorporated         Yes
X
No
_  
Kansas City Power & Light Company
Yes
X
No
_
   
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to the Form 10-K.
Great Plains Energy Incorporated
_
       
   Kansas City Power & Light Company
   X
         
                   
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the 
Exchange Act.
Great Plains Energy Incorporated
Large accelerated filer
X
Accelerated filer
_
     
 
Non-accelerated filer
_
Smaller reporting company
_
     
Kansas City Power & Light Company
Large accelerated filer
_
Accelerated filer
_
     
 
Non-accelerated filer
X
Smaller reporting company
_
     
                   
 
         
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Great Plains Energy Incorporated
Yes
_
No
X
 
Kansas City Power & Light Company
Yes
_
No
X
   
                               
The aggregate market value of the voting and non-voting common equity held by non-affiliates of Great Plains Energy
Incorporated (based on the closing price of its common stock on the New York Stock Exchange on June 30, 2011) was
approximately $2,819,307,073.  All of the common equity of Kansas City Power & Light Company is held by Great Plains
Energy Incorporated, an affiliate of Kansas City Power & Light Company.
                               
On February 21, 2012, Great Plains Energy Incorporated had 136,161,064 shares of common stock outstanding.
On February 21, 2012, Kansas City Power & Light Company had one share of common stock outstanding
and held by Great Plains Energy Incorporated.
 
Kansas City Power & Light Company meets the conditions set forth in General Instruction (I)(1)(a) and (b) of
Form 10-K and is therefore filing this Form 10-K with the reduced disclosure format.
 
Documents Incorporated by Reference
Portions of the 2012 annual meeting proxy statement of Great Plains Energy Incorporated to be filed with the Securities and
Exchange Commission are incorporated by reference in Part III of this report.
 
 
 
 
TABLE OF CONTENTS
 
       
Page
       
Number
 
Cautionary Statements Regarding Forward-Looking Information
3
 
Glossary of Terms
4
 
PART I
 
Item 1.
Business
6
Item 1A.
Risk Factors
11
Item 1B.
Unresolved Staff Comments
22
Item 2.
Properties
23
Item 3.
Legal Proceedings
24
Item 4.
Mine Safety Disclosures
24
 
PART II
 
Item 5.
Market for Registrant's Common Equity, Related Stockholder Matters
 
   
and Issuer Purchases of Equity Securities
25
Item 6.
Selected Financial Data
26
Item 7.
Management's Discussion and Analysis of Financial Condition
 
   
and Results of Operations
26
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
52
Item 8.
Financial Statements and Supplementary Data
55
Item 9.
Changes in and Disagreements With Accountants on Accounting
 
   
and Financial Disclosure
134
Item 9A.
Controls and Procedures
134
Item 9B.
Other Information
138
 
PART III
 
Item 10.
Directors, Executive Officers and Corporate Governance
138
Item 11.
Executive Compensation
138
Item 12.
Security Ownership of Certain Beneficial Owners and Management
 
   
and Related Stockholder Matters
139
Item 13.
Certain Relationships and Related Transactions, and Director Independence
139
Item 14.
Principal Accounting Fees and Services
140
 
PART IV
 
Item 15.
Exhibits and Financial Statement Schedules
141
 
2
 
 
This combined annual report on Form 10-K is being filed by Great Plains Energy Incorporated (Great Plains Energy) and Kansas City Power & Light Company (KCP&L).  KCP&L is a wholly owned subsidiary of Great Plains Energy and represents a significant portion of its assets, liabilities, revenues, expenses and operations.  Thus, all information contained in this report relates to, and is filed by, Great Plains Energy.  Information that is specifically identified in this report as relating solely to Great Plains Energy, such as its financial statements and all information relating to Great Plains Energy’s other operations, businesses and subsidiaries, including KCP&L Greater Missouri Operations Company (GMO), does not relate to, and is not filed by, KCP&L.  KCP&L makes no representation as to that information.  Neither Great Plains Energy nor its other subsidiaries have any obligation in respect of KCP&L’s debt securities and holders of such securities should not consider Great Plains Energy’s or its other subsidiaries’ financial resources or results of operations in making a decision with respect to KCP&L’s debt securities.  Similarly, KCP&L has no obligation in respect of securities of Great Plains Energy or its other subsidiaries.
 
CAUTIONARY STATEMENTS REGARDING CERTAIN FORWARD-LOOKING INFORMATION
Statements made in this report that are not based on historical facts are forward-looking, may involve risks and uncertainties, and are intended to be as of the date when made.  Forward-looking statements include, but are not limited to, the outcome of regulatory proceedings, cost estimates of capital projects and other matters affecting future operations.  In connection with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, Great Plains Energy and KCP&L are providing a number of important factors that could cause actual results to differ materially from the provided forward-looking information.  These important factors include: future economic conditions in regional, national and international markets and their effects on sales, prices and costs, including, but not limited to, possible further deterioration in economic conditions and the timing and extent of economic recovery; prices and availability of electricity in regional and national wholesale markets; market perception of the energy industry, Great Plains Energy and KCP&L; changes in business strategy, operations or development plans; effects of current or proposed state and federal legislative and regulatory actions or developments, including, but not limited to, deregulation, re-regulation and restructuring of the electric utility industry; decisions of regulators regarding rates the Companies can charge for electricity; adverse changes in applicable laws, regulations, rules, principles or practices governing tax, accounting and environmental matters including, but not limited to, air and water quality; financial market conditions and performance including, but not limited to, changes in interest rates and credit spreads and in availability and cost of capital and the effects on nuclear decommissioning trust and pension plan assets and costs; impairments of long-lived assets or goodwill; credit ratings; inflation rates; effectiveness of risk management policies and procedures and the ability of counterparties to satisfy their contractual commitments; impact of terrorist acts, including, but not limited to, cyber terrorism; ability to carry out marketing and sales plans; weather conditions including, but not limited to, weather-related damage and their effects on sales, prices and costs; cost, availability, quality and deliverability of fuel; the inherent uncertainties in estimating the effects of weather, economic conditions and other factors on customer consumption and financial results; ability to achieve generation goals and the occurrence and duration of planned and unplanned generation outages; delays in the anticipated in-service dates and cost increases of generation, transmission, distribution or other projects; the inherent risks associated with the ownership and operation of a nuclear facility including, but not limited to, environmental, health, safety, regulatory and financial risks; workforce risks, including, but not limited to, increased costs of retirement, health care and other benefits; and other risks and uncertainties.
 
This list of factors is not all-inclusive because it is not possible to predict all factors.  Part I Item 1A Risk Factors included in this report should be carefully read for further understanding of potential risks for each of Great Plains Energy and KCP&L.  Other sections of this report and other periodic reports filed by each of Great Plains Energy and KCP&L with the Securities and Exchange Commission (SEC) should also be read for more information regarding risk factors.  Each forward-looking statement speaks only as of the date of the particular statement.  Great Plains Energy and KCP&L undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
 
3
 
 
GLOSSARY OF TERMS
 
The following is a glossary of frequently used abbreviations or acronyms that are found throughout this report.
 
Abbreviation or Acronym
 
Definition
     
AFUDC
 
Allowance for Funds Used During Construction
ARO
 
Asset Retirement Obligation
BART
 
Best available retrofit technology
Board
 
Great Plains Energy Board of Directors
CAIR
 
Clean Air Interstate Rule
CAMR
 
Clean Air Mercury Rule
Clean Air Act
 
Clean Air Act Amendments of 1990
CO2
 
Carbon dioxide
Collaboration Agreement
 
Agreement among KCP&L, the Sierra Club and the Concerned
   Citizens of Platte County
Company
 
Great Plains Energy Incorporated and its subsidiaries
Companies
 
Great Plains Energy Incorporated and its consolidated subsidiaries and
   KCP&L and its consolidated subsidiaries
CSAPR
 
Cross-State Air Pollution Rule
DOE
 
Department of Energy
EBITDA
 
Earnings before interest, income taxes, depreciation and amortization
ECA
 
Energy Cost Adjustment
EGU
 
Electric steam generating unit
EIRR
 
Environmental Improvement Revenue Refunding
EPA
 
Environmental Protection Agency
EPS
 
Earnings per common share
ERISA
 
Employee Retirement Income Security Act of 1974, as amended
FAC
 
Fuel Adjustment Clause
FERC
 
The Federal Energy Regulatory Commission
FGIC
 
Financial Guaranty Insurance Company
FSS
 
Forward Starting Swaps
GAAP
 
Generally Accepted Accounting Principles
GMO
 
KCP&L Greater Missouri Operations Company, a wholly owned subsidiary of
   Great Plains Energy
Great Plains Energy
 
Great Plains Energy Incorporated and its subsidiaries
ISO
 
Independent System Operator
KCC
 
The State Corporation Commission of the State of Kansas
KCP&L
 
 
Kansas City Power & Light Company, a wholly owned subsidiary
   of Great Plains Energy
KDHE
 
Kansas Department of Health and Environment
kV
 
Kilovolt
KW
 
Kilowatt
kWh
 
Kilowatt hour
L&P
 
St. Joseph Light & Power, a division of GMO
MACT
 
Maximum achievable control technology
MATS
 
Mercury and Air Toxics Standards
MD&A
 
Management’s Discussion and Analysis of Financial Condition and
   
   Results of Operations
MDNR
 
Missouri Department of Natural Resources
MEEIA
 
Missouri Energy Efficiency Investment Act
MGP
 
Manufactured gas plant
 
4
 
 
Abbreviation or Acronym
 
Definition
     
MPS Merchant
 
MPS Merchant Services, Inc., a wholly owned subsidiary of GMO
MPSC
 
Public Service Commission of the State of Missouri
MW
 
Megawatt
MWh
 
Megawatt hour
NAAQS
 
National Ambient Air Quality Standard
NERC
 
North American Electric Reliability Corporation
NEIL
 
Nuclear Electric Insurance Limited
NOL
 
Net operating loss
NOx
 
Nitrogen oxide
NPNS
 
Normal purchases and normal sales
NRC
 
Nuclear Regulatory Commission
OCI
 
Other Comprehensive Income
PCB
 
Polychlorinated biphenyls
ppm
 
Parts per million
PRB
 
Powder River Basin
QCA
 
Quarterly Cost Adjustment
Receivables Company
 
Kansas City Power & Light Receivables Company, a wholly owned
   subsidiary of KCP&L
RTO
 
Regional Transmission Organization
SCR
 
Selective catalytic reduction
SEC
 
Securities and Exchange Commission
SERP
 
Supplemental Executive Retirement Plan
SO2
 
Sulfur dioxide
SPP
 
Southwest Power Pool, Inc.
Syncora
 
Syncora Guarantee Inc.
WCNOC
 
Wolf Creek Nuclear Operating Corporation
Westar
 
Westar Energy, Inc., a Kansas utility company
Wolf Creek
 
Wolf Creek Generating Station
 
5
 
 
PART I
 
ITEM 1.  BUSINESS
 
General
Great Plains Energy Incorporated and Kansas City Power & Light Company are separate registrants filing this combined annual report on Form 10-K.  The terms “Great Plains Energy,” “Company,” “KCP&L,” and “Companies” are used throughout this report.  “Great Plains Energy” and the “Company” refer to Great Plains Energy Incorporated and its consolidated subsidiaries, unless otherwise indicated.  “KCP&L” refers to Kansas City Power & Light Company and its consolidated subsidiaries.  “Companies” refers to Great Plains Energy Incorporated and its consolidated subsidiaries and KCP&L and its consolidated subsidiaries.
 
Information in other Items of this report as to which reference is made in this Item 1 is hereby incorporated by reference in this Item 1.  The use of terms such as “see” or “refer to” shall be deemed to incorporate into this Item 1 the information to which such reference is made.
 
GREAT PLAINS ENERGY INCORPORATED
 
Great Plains Energy, a Missouri corporation incorporated in 2001 and headquartered in Kansas City, Missouri, is a public utility holding company and does not own or operate any significant assets other than the stock of its subsidiaries.  Great Plains Energy’s wholly owned direct subsidiaries with operations or active subsidiaries are as follows:
 
·  
KCP&L is an integrated, regulated electric utility that provides electricity to customers primarily in the states of Missouri and Kansas.  KCP&L has one active wholly owned subsidiary, Kansas City Power & Light Receivables Company (Receivables Company).
 
·  
KCP&L Greater Missouri Operations Company (GMO) is an integrated, regulated electric utility that primarily provides electricity to customers in the state of Missouri.  GMO also provides regulated steam service to certain customers in the St. Joseph, Missouri area.  GMO wholly owns MPS Merchant Services, Inc. (MPS Merchant), which has certain long-term natural gas contracts remaining from its former non-regulated trading operations.
 
Great Plains Energy’s sole reportable business segment is electric utility.  For information regarding the revenues, income and assets attributable to the electric utility business segment, see Note 21 to the consolidated financial statements.  Comparative financial information and discussion regarding the electric utility business segment can be found in Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A).
 
The electric utility segment consists of KCP&L, a regulated utility, and GMO’s regulated utility operations which include its Missouri Public Service and St. Joseph Light & Power (L&P) divisions.  Electric utility serves approximately 823,000 customers located in western Missouri and eastern Kansas.  Customers include approximately 725,000 residences, 96,000 commercial firms, and 2,600 industrials, municipalities and other electric utilities.  Electric utility’s retail revenues averaged approximately 90% of its total operating revenues over the last three years.  Wholesale firm power, bulk power sales and miscellaneous electric revenues accounted for the remainder of electric utility’s revenues.  Electric utility is significantly impacted by seasonality with approximately one-third of its retail revenues recorded in the third quarter.  Electric utility’s total electric revenues were 100% of Great Plains Energy’s revenues over the last three years.  Electric utility’s net income accounted for approximately 115%, 111% and 104% of Great Plains Energy’s income from continuing operations in 2011, 2010 and 2009, respectively.
 
6
 
 
Regulation
KCP&L and GMO are regulated by the Public Service Commission of the State of Missouri (MPSC), and KCP&L is also regulated by The State Corporation Commission of the State of Kansas (KCC), with respect to retail rates, certain accounting matters, standards of service and, in certain cases, the issuance of securities, certification of facilities and service territories.  KCP&L and GMO are also subject to regulation by The Federal Energy Regulatory Commission (FERC), with respect to transmission, wholesale sales and rates, and other matters, the Southwest Power Pool, Inc. (SPP) and the North American Electric Reliability Corporation (NERC).  KCP&L has a 47% ownership interest in the Wolf Creek Generating Station (Wolf Creek), which is subject to regulation by the Nuclear Regulatory Commission (NRC), with respect to licensing, operations and safety-related requirements.
 
Missouri and Kansas jurisdictional retail revenues averaged approximately 71% and 29%, respectively, of electric utility’s total retail revenues over the last three years.  See Item 7 MD&A, Critical Accounting Policies section, and Note 5 to the consolidated financial statements for additional information concerning regulatory matters.
 
Competition
Missouri and Kansas continue on the fully integrated utility model and no legislation authorizing retail choice has been introduced in Missouri or Kansas for many years.  As a result, electric utility does not compete with others to supply and deliver electricity in its franchised service territory, although other sources of energy can provide alternatives to electric utility customers.  If Missouri or Kansas were to pass and implement legislation authorizing or mandating retail choice, electric utility may no longer be able to apply regulated utility accounting principles to deregulated portions of its operations and may be required to write off certain regulatory assets and liabilities.
 
Electric utility competes in the wholesale market to sell power in circumstances when the power it generates is not required for customers in its service territory.  In this regard, electric utility competes with owners of other generating stations and other power suppliers, principally utilities in its region, on the basis of availability and price.  Electric utility’s wholesale revenues averaged approximately 8% of its total revenues over the last three years.
 
Power Supply
Electric utility has over 6,600 MWs of generating capacity.  The projected peak summer demand for 2012 is approximately 5,700 MWs.  Electric utility expects to meet its projected capacity requirements through 2020 with its generation assets, capacity purchases or new capacity additions.
 
KCP&L and GMO are members of the SPP.  SPP is a Regional Transmission Organization (RTO) mandated by FERC to ensure reliable supply of power, adequate transmission infrastructure and competitive wholesale prices of electricity.  As members of the SPP, KCP&L and GMO are required to maintain a capacity margin of at least 12% of their projected peak summer demand.  This net positive supply of capacity and energy is maintained through their generation assets and capacity, power purchase agreements and peak demand reduction programs.  The capacity margin is designed to ensure the reliability of electric energy in the SPP region in the event of operational failure of power generating units utilized by the members of the SPP.
 
7
 
 
Fuel
The principal fuel sources for electric utility’s electric generation are coal and nuclear fuel.  It is expected, with normal weather, that approximately 95% of 2012 generation will come from these sources with the remainder provided by wind, natural gas and oil.  The actual 2011 and estimated 2012 fuel mix and delivered cost in cents per net kWh generated are outlined in the following table.
                   
            Fuel cost in cents per
 
Fuel Mix (a)
  net kWh generated
 
Estimated
Actual
 
Estimated
Actual
Fuel
2012
2011
 
2012
2011
Coal
  80 %   83 %     2.06     2.06  
Nuclear
  15     13       0.71     0.72  
Natural gas and oil
  3     2       5.45     7.82  
Wind
  2     2       -     -  
Total Generation
  100 %   100 %     1.95     1.92  
(a) Fuel mix based on percent of net MWhs generated.
               

GMO’s retail rates and KCP&L’s retail rates in Kansas contain certain fuel recovery mechanisms.  KCP&L’s Missouri retail rates do not contain a fuel recovery mechanism.  To the extent the price of fuel or purchased power increases significantly, or if electric utility’s lower cost units do not meet anticipated availability levels, Great Plains Energy’s net income may be adversely affected unless and until the increased cost could be reflected in KCP&L’s Missouri retail rates.
 
Coal
During 2012, electric utility’s generating units, including jointly owned units, are projected to burn approximately 16 million tons of coal.  KCP&L and GMO have entered into coal-purchase contracts with various suppliers in Wyoming's Powder River Basin (PRB), the nation's principal supply region of low-sulfur coal, and with local suppliers.  The coal to be provided under these contracts is expected to satisfy almost all of the projected coal requirements for 2012 and approximately 95% for 2013, 70% for 2014 and 20% for 2015.  The remainder of the coal requirements is expected to be fulfilled through additional contracts or spot market purchases.  KCP&L and GMO have entered into coal contracts over time at higher average prices affecting coal costs for 2012 and beyond.
 
KCP&L and GMO have also entered into rail transportation contracts with various railroads to transport coal from the PRB to their generating units.  The transportation services to be provided under these contracts are expected to satisfy approximately 95% of the projected transportation requirements for 2012 and approximately 85% for 2013 and 20% for each of 2014 and 2015.  The contract rates adjust for changes in railroad costs.
 
Nuclear Fuel
KCP&L owns 47% of Wolf Creek Nuclear Operating Corporation (WCNOC), the operating company for Wolf Creek, which is electric utility’s only nuclear generating unit.  Wolf Creek purchases uranium and has it processed for use as fuel in its reactor.  This process involves conversion of uranium concentrates to uranium hexafluoride, enrichment of uranium hexafluoride and fabrication of nuclear fuel assemblies.  The owners of Wolf Creek have on hand or under contract all of the uranium and conversion services needed to operate Wolf Creek through March 2014 and approximately 78% after that date through March 2020.  The owners also have under contract all of the uranium enrichment and fabrication required to operate Wolf Creek through March 2026.
 
See Note 4 to the consolidated financial statements for additional information regarding nuclear plant.
 
8
 
 
Natural Gas
At December 31, 2011, KCP&L had hedged approximately 66%, 56% and 13% of its 2012, 2013 and 2014, respectively, projected natural gas usage for generation requirements to serve retail load and firm MWh sales.  At December 31, 2011, GMO had hedged approximately 45%, 38% and 38% of its 2012, 2013 and 2014, respectively, expected on-peak natural gas usage and natural gas equivalent purchased power.
 
Purchased Capacity and Power
KCP&L and GMO have distinct rate and dispatching areas.  As a result, KCP&L and GMO do not joint-dispatch their respective generation.  KCP&L purchases power to meet its customers’ needs when it does not have sufficient available generation or when the cost of purchased power is less than KCP&L’s cost of generation or to satisfy firm power commitments or renewable energy standards.  During 2011, KCP&L entered into long-term power purchase agreements for approximately 231 MWs of wind generation beginning in 2012 which expire in 2032.  GMO has long-term purchased capacity agreements for approximately 135 MWs, which expire in 2014 through 2016, and in 2011 entered into a long-term power purchase agreement for approximately 100 MWs of wind generation beginning in 2012 that expires in 2032.  Management believes electric utility will be able to obtain enough power to meet its future demands due to the coordination of planning and operations in the SPP region; however, price and availability of power purchases may be impacted during periods of high demand.  Electric utility’s purchased power, as a percentage of MWh requirements, averaged approximately 16% over the last three years.
 
Environmental Matters
See Note 14 to the consolidated financial statements for information regarding environmental matters.
 
KANSAS CITY POWER & LIGHT COMPANY
 
KCP&L, headquartered in Kansas City, Missouri, is an integrated, regulated electric utility that engages in the generation, transmission, distribution and sale of electricity.  KCP&L serves approximately 511,000 customers located in western Missouri and eastern Kansas.  Customers include approximately 451,000 residences, 58,000 commercial firms, and 2,100 industrials, municipalities and other electric utilities.  KCP&L’s retail revenues averaged approximately 87% of its total operating revenues over the last three years.  Wholesale firm power, bulk power sales and miscellaneous electric revenues accounted for the remainder of KCP&L’s revenues.  KCP&L is significantly impacted by seasonality with approximately one-third of its retail revenues recorded in the third quarter.  Missouri and Kansas jurisdictional retail revenues averaged approximately 56% and 44%, respectively, of total retail revenues over the last three years.
 
GREAT PLAINS ENERGY AND KCP&L EMPLOYEES
At December 31, 2011, Great Plains Energy and KCP&L had 3,053 employees, including 1,917 represented by three local unions of the International Brotherhood of Electrical Workers (IBEW).  KCP&L has labor agreements with Local 1613, representing clerical employees (expires March 31, 2013), with Local 1464, representing transmission and distribution workers (expires January 31, 2013), and with Local 412, representing power plant workers (expires February 28, 2013).
 
9
 
 
Executive Officers
All of the individuals in the following table have been officers or employees in a responsible position with the Company in the positions noted below for the past five years unless otherwise indicated in the footnotes.  The executive officers were reappointed to the indicated positions by the respective boards of directors, effective January 1, 2012, to hold such positions until their resignation, removal or the appointment of their successors.  There are no family relationships between any of the executive officers, nor any arrangement or understanding between any executive officer and any other person involved in officer selection.  Each executive officer holds the same position with GMO as he or she does with KCP&L.
   
     
Year First
     
Assumed
     
an Officer
Name
Age
Current Position(s)
Position
       
Michael J. Chesser (a)
63
Chairman of the Board and Chief Executive Officer – Great Plains Energy and KCP&L
2003
Terry Bassham (b)
51
President and Chief Operating Officer – Great Plains Energy and KCP&L
2005
James C. Shay (c)
48
Senior Vice President – Finance and Strategic Development  and Chief Financial Officer  – Great Plains Energy and KCP&L
2010
Kevin E. Bryant (d)
36
Vice President – Investor Relations and Treasurer – Great Plains Energy and KCP&L
2006
Charles A. Caisley (e)
39
Vice President – Marketing and Public Affairs – Great Plains Energy and KCP&L
2011
Michael L. Deggendorf (f)
50
Senior Vice President – Delivery – KCP&L
2005
Ellen E. Fairchild (g)
50
Vice President, Corporate Secretary and Chief Compliance Officer – Great Plains Energy and KCP&L
2010
Scott H. Heidtbrink (h)
50
Senior Vice President – Supply – KCP&L
2008
Heather A. Humphrey (i)
41
General Counsel and Senior Vice President – Human Resources – Great Plains Energy and KCP&L
2010
Lori A. Wright (j)
49
Vice President - Business Planning and Controller – Great Plains Energy and KCP&L
2002

(a)
Mr. Chesser was appointed Chairman of the Board and Chief Executive Officer of Great Plains Energy in 2003.  He was appointed Chairman of the Board of KCP&L in 2003, and Chief Executive Officer of KCP&L and Chairman of the Board and Chief Executive Officer of GMO in 2008.
(b)
Mr. Bassham was appointed President and Chief Operating Officer of Great Plains Energy, KCP&L and GMO in 2011.  He served as Executive Vice President – Utility Operations of KCP&L and GMO (2010-2011).  He was Executive Vice President – Finance and Strategic Development and Chief Financial Officer of Great Plains Energy (2005-2010) and of KCP&L and GMO (2009-2010).  He was Chief Financial Officer of KCP&L (2005-2008) and GMO (2008).
(c)
Mr. Shay was appointed Senior Vice President – Finance and Strategic Development and Chief Financial Officer of Great Plains Energy, KCP&L and GMO in 2010.  He was Chief Financial Officer, with responsibilities for finance, accounting and information technology, at Northern Power Systems, Inc., a wind turbine manufacturing business (2009-2010); Managing Director, with responsibilities for business development, transaction execution and advisory work, at Frontier Investment Banc Corporation (2007-2008); and Chief Financial Officer, with responsibilities for finance, accounting, human resources, information technology and procurement, at Machine Laboratory LLC, a manufacturer of machined parts for the automotive industry (2006-2007).  Prior to that, Mr. Shay was Chief Financial Officer, with
 
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responsibilities for finance and accounting, at General Electric Co. Environmental Services (2004-2006) after its acquisition of BHA Group Holdings, Inc., a supplier of aftermarket parts and service for industrial air pollution equipment.
(d)
Mr. Bryant was appointed Vice President – Investor Relations and Treasurer of Great Plains Energy, KCP&L and GMO in 2011.  He was Vice President – Strategy and Risk Management of KCP&L and GMO (2011) and Vice President – Energy Solutions (2006-2011) of KCP&L and GMO.
(e)
Mr. Caisley was appointed Vice President – Marketing and Public Affairs of Great Plains Energy, KCP&L and GMO in 2011.  He was Senior Director of Public Affairs (2008-2011) and Director of Governmental Affairs (2007-2008).  Prior to that, he was the president of the Missouri Energy Development Association (2005-2007).
(f)
Mr. Deggendorf was appointed Senior Vice President – Delivery of KCP&L and GMO in 2008.  He was Vice President – Public Affairs of Great Plains Energy (2005-2008) and Senior Director, Energy Solutions (2002-2005) of KCP&L.
(g)
Ms. Fairchild was appointed Vice President, Corporate Secretary and Chief Compliance Officer of Great Plains Energy, KCP&L and GMO in 2010.  She was Senior Director of Investor Relations and Assistant Secretary (2010) and Director of Investor Relations (2008-2010) of Great Plains Energy, KCP&L and GMO.  Prior to that, she was an associate at Hagen and Partners (2005-2007), a public relations firm.
(h)
Mr. Heidtbrink was appointed Senior Vice President – Supply of KCP&L and GMO in 2009.  He was Senior Vice President – Corporate Services of KCP&L and GMO (2008), and Vice President – Power Generation & Energy Resources (2006-2008) of GMO.
(i)
Ms. Humphrey was appointed General Counsel and Vice President – Human Resources of Great Plains Energy, KCP&L and GMO in 2010.  She was Senior Director of Human Resources and Interim General Counsel of Great Plains Energy, KCP&L and GMO (2010) and Managing Attorney of KCP&L (2007-2010).  Prior to that, she was a shareholder of the law firm of Shughart Thomson & Kilroy (1996-2006).
(j)
Ms. Wright was appointed Vice President and Controller of Great Plains Energy, KCP&L and GMO in 2009.  She was Controller of Great Plains Energy and KCP&L (2002-2008) and GMO (2008).

Available Information
Great Plains Energy’s website is www.greatplainsenergy.com and KCP&L’s website is www.kcpl.com.  Information contained on these websites is not incorporated herein.  The Companies make available, free of charge, on or through their websites, their annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after the companies electronically file such material with, or furnish it to, the SEC.  In addition, the Companies make available on or through their websites all other reports, notifications and certifications filed electronically with the SEC.
 
The public may read and copy any materials that the Companies file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549.  For information on the operation of the Public Reference Room, please call the SEC at 1-800-SEC-0330.  The SEC also maintains an Internet site at http://www.sec.gov that contains reports, proxy statements and other information regarding the Companies.
 
ITEM 1A.  RISK FACTORS
 
Actual results in future periods for Great Plains Energy and KCP&L could differ materially from historical results and the forward-looking statements contained in this report.  The Companies’ business is influenced by many factors that are difficult to predict, involve uncertainties that may materially affect actual results and are often beyond their control.  Additional risks and uncertainties not presently known or that the Companies’ management currently believes to be immaterial may also adversely affect the Companies.  This information, as well as the other information included in this report and in the other documents filed with the SEC, should be carefully considered before making an investment in the securities of Great Plains Energy or KCP&L.  Risk factors of KCP&L are also risk factors of Great Plains Energy.
 
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Utility Regulatory Risks:
 
Complex utility regulation could adversely affect the Companies’ results of operations, financial position and cash flows.
The Companies are subject to, or affected by, extensive federal and state utility regulation, including regulation by the MPSC, KCC, FERC, NRC, SPP and NERC.  The Companies must address in their business planning and management of operations the effects of existing and proposed laws and regulations and potential changes in the regulatory framework, including initiatives by federal and state legislatures, RTOs, utility regulators and taxing authorities.  Failure of the Companies to obtain adequate rates or regulatory approvals in a timely manner, new or changed laws, regulations, standards, interpretations or other legal requirements, and increased compliance costs and potential non-compliance consequences may materially affect the Companies’ results of operations, financial position and cash flows.  Certain of these risks are addressed in greater detail below.
 
The outcome of retail rate proceedings could have a material impact on the business and is largely outside the Companies’ control.
The rates that KCP&L and GMO are allowed to charge their customers significantly influence the Companies’ results of operations, financial position and cash flows.  These rates are subject to the determination, in large part, of governmental entities outside of the Companies’ control, including the MPSC, KCC and FERC.  
 
The utility rate-setting principle generally applicable to KCP&L and GMO is that rates should provide a reasonable opportunity to recover expenses and investment prudently incurred to provide utility service plus a reasonable return on such investment.  Various expenses incurred by KCP&L and GMO have been excluded from rates by the MPSC and KCC in past rate cases as not being prudently incurred or not providing utility customer benefit, and there is a risk that certain expenses incurred in the future may not be recovered in rates.  The MPSC and KCC also have in the past and may in the future exclude from rates all or a portion of investments in various facilities as not being prudently incurred or not being useful in providing utility service.  
 
In March 2007, KCP&L entered into a Collaboration Agreement with the Sierra Club and the Concerned Citizens of Platte County that provides for increases in KCP&L’s wind generation capacity and energy efficiency initiatives, reductions in certain emission permit levels at its Iatan and La Cygne generating stations, and projects to offset certain CO2 emissions.  The wind generation, energy efficiency and emission permit reductions are conditioned on regulatory approval.  In addition to these commitments, as discussed in the “Environmental Risks” and “Financial Risks” sections below, the Companies’ capital expenditures are expected to be substantial over the next several years for additional environmental projects, as well as other projects, and there is a risk that a portion of the capital costs could be excluded from rates in future rate cases.
 
The Companies are also exposed to cost-recovery shortfalls due to the inherent “regulatory lag” in the rate-setting process, especially during periods of significant cost inflation or declining retail usage, as KCP&L’s and GMO’s utility rates are generally based on historical information and are not subject to adjustment (other than principally for fuel and purchased power for KCP&L in Kansas and for GMO) between rate cases.  These and other factors may result in under-recovery of costs, failure to earn the authorized return on investment, or both.
 
There are mandatory renewable energy standards in Missouri and Kansas.  There is the potential for future federal or state mandatory energy efficiency requirements.  KCP&L and GMO have implemented certain energy efficiency programs, and currently the recovery of these program expenses are on a deferred basis with no recovery mechanism for associated lost revenues.
 
        Failure to timely recover the full investment costs of capital projects, or the impact of renewable energy and energy efficiency programs, or other utility costs and expenses due to regulatory disallowances,
 
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regulatory lag or other factors could lead to lowered credit ratings, reduced access to capital markets, increased financing costs, lower flexibility due to constrained financial resources and increased collateral security requirements, or reductions or delays in planned capital expenditures.  In response to competitive, economic, political, legislative, public perception (including, but not limited to, the Companies’ environmental reputation) and regulatory pressures, the Companies may be subject to rate moratoriums, rate refunds, limits on rate increases, lower allowed returns on investment or rate reductions, including phase-in plans designed to spread the impact of rate increases over an extended period of time for the benefit of customers.  
 
Regulatory requirements regarding utility operations may increase costs and may expose the Companies to compliance penalties or adverse rate consequences.
The FERC, NERC and SPP have implemented and enforce an extensive set of transmission system reliability, cyber security and critical infrastructure protection standards that apply to public utilities, including KCP&L and GMO.  The MPSC and KCC have the authority to implement utility operational standards and requirements, such as vegetation management standards, facilities inspection requirements and quality of service standards.  In addition, the Companies are also subject to health, safety and other requirements enacted by the Occupational Safety and Health Administration, the Department of Transportation, the Department of Labor and other federal and state agencies.  As discussed more fully under “Operational Risks,” the NRC extensively regulates nuclear power plants, including Wolf Creek.  The costs of existing, new or modified regulations, standards and other requirements could have an adverse effect on the Companies’ results of operations, financial position and cash flows as a result of increased operations or maintenance and capital expenditures for new facilities or to repair or improve existing facilities.  In addition, failure to meet quality of service, reliability, cyber security, critical infrastructure protection, operational or other standards and requirements could expose the Companies to penalties, additional compliance costs, or adverse rate consequences.
 
Environmental Risks:
 
The Companies are subject to current and potential environmental requirements and the incurrence of environmental liabilities, any or all of which may adversely affect their business and financial results.
The Companies are subject to extensive federal, state and local environmental laws, regulations and permit requirements relating to air and water quality, waste management and disposal, natural resources and health and safety.  In addition to imposing continuing compliance obligations and remediation costs for historical and pre-existing conditions, these laws, regulations and permits authorize the imposition of substantial penalties for noncompliance, including fines, injunctive relief and other sanctions.  There is also a risk that new environmental laws and regulations, new judicial interpretations of environmental laws and regulations, or the requirements in new or renewed environmental permits could adversely affect the Companies’ operations.  In addition, there is also a risk of lawsuits brought by third parties alleging violations of environmental commitments or requirements, creation of a public nuisance or other matters, and seeking injunctions or monetary or other damages.  Certain federal courts have held that state and local governments and private parties have standing to bring climate change tort suits seeking company-specific emission reductions and damages.
 
Environmental permits are subject to periodic renewal, which may result in more stringent permit conditions and limits.  New facilities, or modifications of existing facilities, may require new environmental permits or amendments to existing permits.  Delays in the environmental permitting process, public opposition and challenges, denials of permit applications, limits or conditions imposed in permits and the associated uncertainty may materially adversely affect the cost and timing of projects, and thus materially adversely affect the Companies’ results of operations, financial position and cash flows.
 
KCP&L and GMO periodically seek recovery of capital costs and expenses for environmental compliance and remediation through rate increases; however, there can be no assurance that recovery of these costs would be granted.  
 
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As discussed above, KCP&L and GMO may be subject to material adverse rate treatment in response to competitive, economic, political, legislative or regulatory pressures and/or public perception of the Companies’ environmental reputation.  The costs of compliance or noncompliance with environmental requirements, remediation costs, adverse outcomes of lawsuits, or failure to timely recover environmental costs could have a material adverse effect on the Companies’ results of operations, financial position and cash flows.  Certain of these matters are discussed in more detail below.  See Note 14 to the consolidated financial statements for additional information regarding certain significant environmental matters.
 
Air and Climate Change
The Companies believe it is likely that additional federal or relevant regional, state or local laws or regulations could be enacted to address global climate change.  While the United States is not a current party to the international Kyoto Protocol, it has agreed to undertake certain voluntary actions under the non-binding Copenhagen Accord and pursuant to subsequent international discussions relating to climate change, including the establishment of a goal to reduce greenhouse gas emissions.  International agreements legally binding on the United States may be reached in the future.  Such laws or regulations could require the control or reduction of emissions of greenhouse gases, such as CO2, which are created in the combustion of fossil fuels.  These requirements could include, among other things, taxes or fees on fossil fuels or emissions, cap and trade programs, emission limits and clean or renewable energy standards.  The Companies’ current generation capacity is over 50% coal-fired, and is estimated to produce about one ton of CO2 per MWh generated.  Great Plains Energy and KCP&L produce about 25 million and 18 million tons of CO2 per year, respectively.  Missouri law requires at least 2% of the electricity provided by certain utilities, including KCP&L and GMO, to come from renewable resources, increasing to 15% by 2021.  Kansas law requires certain utilities, including KCP&L, to have renewable energy generation capacity equal to at least 10% of their three-year average Kansas peak retail demand, increasing to 15% by 2016 and 20% by 2020.
 
Management believes that national renewable energy standards are also possible.  The timing, provisions and impact of such requirements, including the cost to obtain and install new equipment to achieve compliance, cannot be reasonably estimated at this time.  Such requirements could have a significant financial and operational impact on the Companies.
 
The Environmental Protection Agency (EPA) has enacted various regulations regarding the reporting and permitting of greenhouse gases and has proposed other regulations under the existing Clean Air Act.  The EPA has established thresholds for greenhouse gas emissions, defining when Clean Air Act permits under the New Source Performance Standards, New Source Review and Title V operating permits programs would be required for new or existing industrial facilities and when the installation of best available control technology would be required.  Most of the Companies’ generating facilities are affected by these existing rules and would be affected by the proposed rules.  Additional federal and/or state legislation or regulation respecting greenhouse gas emissions may be proposed or enacted in the future.  Further, pursuant to the Collaboration Agreement, KCP&L agreed to pursue a set of initiatives including energy efficiency, additional wind generation, lower emission permit levels at its Iatan and La Cygne stations and other initiatives designed to offset CO2 emissions.  Requirements to reduce greenhouse gas emissions may cause the Companies to incur significant costs relating to their ongoing operations (for additional environmental control equipment, retiring and replacing existing generation, or selecting more costly generation alternatives), or to procure emission allowance credits, or due to the imposition of taxes, fees or other governmental charges as a result of such emissions.  
 
Rules issued by the EPA regarding emissions of mercury and other hazardous air pollutants, NOX, SO2 and particulates are also in a state of flux.  Some of these rules have been overturned by the courts and remanded to the EPA to be revised consistent with the courts’ orders while others have been stayed pending judicial review or are otherwise subject to revision.  The Companies’ current estimates of capital expenditures (exclusive of Allowance for Funds Used During Construction (AFUDC) and property taxes)
 
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to comply with the currently effective Clean Air Interstate Rule (CAIR), the replacement to CAIR or the Cross-State Air Pollution Rule (CSAPR), the best available retrofit technology (BART) rule, the SO2 National Ambient Air Quality Standard (NAAQS), the industrial boiler rule, and the Mercury and Air Toxics Standards (MATS) rule is approximately $1 billion.  However, it is unknown what requirements and standards will be imposed in the future, when the Companies may have to comply or what costs may ultimately be required.
 
Water
The Clean Water Act and associated regulations enacted by the EPA form a comprehensive program to preserve water quality.  All of the Companies’ generating facilities, and certain of their other facilities, are subject to the Clean Water Act.
 
Previously issued EPA regulations regarding protection of aquatic life from being killed or injured by cooling water intake structures have been suspended; however, the EPA has proposed revised rulemaking on this matter.  At this time, the Companies are unable to predict how the EPA will respond or how that response will impact the Companies’ operations.
 
KCP&L holds a permit from the Missouri Department of Natural Resources (MDNR) authorizing KCP&L to, among other things, withdraw water from the Missouri River for cooling purposes and return the heated water to the Missouri river at its Hawthorn Station.  KCP&L has applied for a renewal of this permit and the EPA has submitted an interim objection letter regarding the allowable amount of heat that can be contained in the returned water.  Until this matter is resolved, KCP&L continues to operate under its current permit.  KCP&L cannot predict the outcome of this matter; however, while less significant outcomes are possible, this matter may require KCP&L to reduce its generation at Hawthorn Station, install cooling towers or both, any of which could have a significant adverse impact on KCP&L.  The outcome could also affect the terms of water permit renewals at KCP&L’s Iatan Station and at GMO’s Sibley and Lake Road Stations.  Additionally, the EPA in September 2009 announced plans to revise the existing standards for waste water discharges from coal-fired power plants.  In November 2010, the EPA filed a motion requesting court approval of a consent agreement in which the EPA agreed to propose a rule in July 2012 and to finalize it in January 2014.  Until a rule is proposed and finalized, the financial and operational impacts cannot be determined.  Further, the possible effects of climate change, including potentially increased temperatures and reduced precipitation, could make it more difficult and costly to comply with the final permit requirements.
 
Solid Waste
Solid and hazardous waste generation, storage, transportation, treatment and disposal is regulated at the federal and state levels under various laws and regulations.  The Companies principally use coal in generating electricity and dispose of coal combustion residuals (CCRs) in both on-site facilities and facilities owned by third parties.  In response to an incident at a Tennessee Valley Authority coal combustion product containment area, the EPA has proposed regulations regarding the handling and disposal of CCRs, which include alternative proposals to regulate CCRs as special or hazardous wastes or as non-hazardous wastes.  If enacted, any new laws and regulations, especially if CCRs are classified as hazardous waste, could have a material adverse effect on the Companies’ results of operations, financial position and cash flows.
 
Remediation
Under current law, the Companies are also generally responsible for any liabilities associated with the environmental condition of their properties, and other properties at which the Companies arranged for the disposal or treatment of hazardous substances, including properties that they have previously owned or operated, such as manufactured gas plants (MGP), regardless of whether they were responsible for the contamination or whether the liabilities arose before, during or after the time they owned or operated the properties or arranged for the disposal or treatment of hazardous substances. 
 
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Due to all of the above, the Companies’ projected capital and other expenditures for environmental compliance are subject to significant uncertainties, including the timing of implementation of any new or modified environmental requirements, the emissions limits imposed by such requirements and the types and costs of the compliance alternatives selected by the Companies.  As a result, costs to comply with environmental requirements cannot be estimated with certainty, and actual costs could be significantly higher than projections.  Other new environmental laws and regulations affecting the operations of the Companies may be adopted, and new interpretations of existing laws and regulations could be adopted or become applicable to the Companies or their facilities, any of which may materially adversely affect the Companies’ business, adversely affect the Companies’ ability to continue operating its power plants as currently done and substantially increase their environmental expenditures or liabilities in the future.
 
Financial Risks:
 
Financial market disruptions and declines in credit ratings may increase financing costs and/or limit access to the credit markets, which may adversely affect liquidity and results.
The Companies’ capital requirements are expected to be substantial over the next several years.  The Companies rely on access to short-term money markets, revolving credit facilities provided by financial institutions and long-term capital markets as significant sources of liquidity for capital requirements not satisfied by cash flows from operations.  The Companies also rely on bank-provided credit facilities for credit support, such as letters of credit, to support operations.  The amount of credit support required for operations varies and is impacted by a number of factors, including the amount and price of wholesale power purchased or sold.  
 
Great Plains Energy, KCP&L, GMO and certain of their securities are rated by Moody's Investors Service and Standard & Poor's.  These ratings impact the Companies’ cost of funds and Great Plains Energy’s ability to provide credit support for its subsidiaries.  The interest rates on borrowings under the Companies’ revolving credit agreements and on a substantial portion of Great Plains Energy’s and GMO’s debt are subject to increase as their respective credit ratings decrease.  The Companies have agreed to not seek rate recovery of GMO interest costs in excess of equivalent investment-grade debt.  The amount of collateral or other credit support required under power supply and certain other agreements is also dependent on credit ratings.  
 
Although the United States capital and credit markets have generally stabilized after an extended period of volatility and disruption, there is no assurance that conditions will not deteriorate in the future due to the current instability in Europe or unforeseen events both in the United States and around the world.  Adverse market conditions or decreases in Great Plains Energy’s, KCP&L’s or GMO’s credit ratings could have material adverse effects on the Companies.  These effects could include, among others: reduced access to capital and increased cost of funds; dilution resulting from equity issuances at reduced prices; changes in the type and/or increases in the amount of collateral or other credit support obligations required to be posted with contractual counterparties; increased nuclear decommissioning trust and pension and other post-retirement benefit plan funding requirements; rate case disallowance of KCP&L’s or GMO’s costs of capital; reductions in or delays of capital expenditures, or reductions in Great Plains Energy’s ability to provide credit support for its subsidiaries.  Any of these results could adversely affect the Companies’ results of operations, financial position and cash flows.  In addition, market disruption and volatility could have an adverse impact on the Companies’ lenders, suppliers and other counterparties or customers, causing them to fail to meet their obligations.
 
Great Plains Energy has guaranteed substantially all of the outstanding debt of GMO and payments under these guarantees may adversely affect Great Plains Energy’s liquidity.
In connection with the GMO acquisition, Great Plains Energy issued guarantees covering substantially all of the outstanding debt of GMO and has guaranteed GMO’s current $450 million revolving credit facility.  The guarantees are a factor in GMO maintaining investment-grade ratings and the guarantees obligate Great Plains Energy to pay amounts owed by GMO directly to the holders of the guaranteed debt in the event GMO defaults on its payment obligations.  Great Plains Energy may also guarantee debt that GMO may issue in the future.  Any guarantee payments could adversely affect Great Plains Energy’s liquidity.
 
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The inability of Great Plains Energy’s subsidiaries to provide sufficient dividends to Great Plains Energy, or the inability otherwise of Great Plains Energy to pay dividends to its shareholders and meet its financial obligations would have an adverse effect.
Great Plains Energy is a holding company with no significant operations of its own.  The primary source of funds for payment of dividends to its shareholders and its other financial obligations is dividends paid to it by its subsidiaries, particularly KCP&L and GMO.  The ability of Great Plains Energy’s subsidiaries to pay dividends or make other distributions, and accordingly, Great Plains Energy’s ability to pay dividends on its common stock and meet its financial obligations principally depends on the actual and projected earnings and cash flow, capital requirements and general financial position of its subsidiaries, as well as regulatory factors, financial covenants, general business conditions and other matters.
 
In addition, Great Plains Energy, KCP&L and GMO are subject to certain corporate and regulatory restrictions and financial covenants that could affect their ability to pay dividends.  Great Plains Energy’s articles of incorporation restrict the payment of common stock dividends in the event common equity is 25% or less of total capitalization.  In addition, if preferred stock dividends are not declared and paid when scheduled, Great Plains Energy could not declare or pay common stock dividends or purchase any common shares.  If the unpaid preferred stock dividends equal four or more full quarterly dividends, the preferred shareholders, voting as a single class, could elect the smallest number of directors necessary to constitute a majority of the full Great Plains Energy Board of Directors.  Certain conditions in the MPSC and KCC orders authorizing the holding company structure require Great Plains Energy and KCP&L to maintain consolidated common equity of at least 30% and 35%, respectively, of total capitalization (including only the amount of short-term debt in excess of the amount of construction work in progress).  Under the Federal Power Act, KCP&L and GMO generally can pay dividends only out of retained earnings.  The revolving credit agreements of Great Plains Energy, KCP&L and GMO contain a covenant requiring each company to maintain a consolidated indebtedness to consolidated total capitalization ratio of not more than 0.65 to 1.00.  In addition, Great Plains Energy is prohibited from paying dividends on its common and preferred stock in the event its Equity Unit contract payments or interest payments on the debt underlying the Equity Units are deferred until such deferrals have been paid.  While these corporate and regulatory restrictions and financial covenants are not expected to affect the Companies’ ability to pay dividends at the current level in the foreseeable future, there is no assurance that adverse financial results would not trigger such restrictions or covenants and reduce or eliminate the Companies’ ability to pay dividends.
 
Market performance, increased retirements and retirement plan regulations could significantly impact retirement plan funding requirements and associated cash needs and expenses.
Substantially all of the Companies’ and WCNOC’s employees participate in defined benefit retirement and post-retirement plans.  Former employees also have accrued benefits in defined benefit retirement and post-retirement plans.  The costs of these plans depend on a number of factors, including the rates of return on plan assets, the level and nature of the provided benefits, discount rates, the interest rates used to measure required minimum funding levels, changes in benefit design, changes in laws or regulations, and the Companies’ required or voluntary contributions to the plans.  The Companies currently have substantial unfunded liabilities under these plans.  Also, if the rate of retirements exceeds planned levels, or if these plans experience adverse market returns on investments, or if interest rates materially fall, the Companies’ contributions to the plans could rise substantially over historical levels.  In addition, changes in accounting rules and assumptions related to future costs, returns on investments, interest rates and other actuarial assumptions, including projected retirements, could have a significant impact on the Companies’ results of operations, financial position and cash flows.
 
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The use of derivative contracts in the normal course of business could result in losses that could negatively impact the Companies’ results of operations, financial position and cash flows.
The Companies use derivative instruments, such as swaps, options, futures and forwards, to manage commodity and financial risks.  Losses could be recognized as a result of volatility in the market values of these contracts, if a counterparty fails to perform, or if the underlying transactions which the derivative instruments are intended to hedge fail to materialize.  In the absence of actively quoted market prices and pricing information from external sources, the valuation of these financial instruments can involve management’s judgment or the use of estimates.  As a result, changes in the underlying assumptions or use of alternative valuation methods could affect the reported fair value of these contracts.
 
As a service provider to GMO, KCP&L may have exposure to GMO’s financial performance and operations.
GMO has no employees of its own.  KCP&L employees operate and manage GMO’s properties, and KCP&L charges GMO for the cost of these services.  These arrangements may pose risks to KCP&L, including possible claims arising from actions of KCP&L employees in operating GMO’s properties and providing other services to GMO.  KCP&L’s claims for reimbursement for services provided to GMO are unsecured and rank equally with other unsecured obligations of GMO.  KCP&L’s ability to be reimbursed for the costs incurred for the benefit of GMO depends on the financial ability of GMO to make such payments.
 
Customer and Weather-Related Risks:
 
Changes in customer electricity consumption due to sustained financial market disruptions, downturns or sluggishness in the economy, technological advances, or other factors may adversely affect the Companies’ results of operations, financial position and cash flows.
The results of operations, financial position and cash flows of the Companies can be materially affected by changes in customer electricity consumption.  The Companies estimate customer electricity consumption based on historical trends to procure fuel and purchased power.  Sustained downturns or sluggishness in the economy generally affect the markets in which the Companies operate.  Additionally, technological advances or other energy conservation measures could reduce customer electricity consumption.
 
Weather is a major driver of the Companies’ results of operations, financial position and cash flow.
Weather conditions directly influence the demand for electricity and natural gas and affect the price of energy commodities.  Great Plains Energy and KCP&L are significantly impacted by seasonality, with approximately one-third of their retail electric revenues recorded in the third quarter.  Unusually mild winter or summer weather can adversely affect sales.  In addition, severe weather, including but not limited to tornados, snow, rain, flooding and ice storms can be destructive causing outages and property damage that can potentially result in additional expenses, lower revenues and additional capital restoration costs.  KCP&L’s and GMO’s rates may not always be adjusted timely and adequately to reflect these increased costs.  Some of the Companies’ generating stations utilize water from the Missouri River for cooling purposes.  Low water and flow levels, which have been experienced in past years, can increase maintenance costs at these stations and, if these levels were to get low enough, could require modifications to plant operations.  The possible effects of climate change (such as increased temperatures, increased occurrence of severe weather or reduced precipitation, among other possible results) could potentially increase the volatility of demand and prices for energy commodities, the frequency and impact of severe weather, increase the frequency of flooding or decrease water and flow levels.
 
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Operational Risks:
 
Operations risks may adversely affect the Companies’ results of operations, financial position and cash flows.
The operation of the Companies’ electric generation, transmission, distribution and information systems involves many risks, including breakdown or failure of equipment, processes and personnel performance; problems that delay or increase the cost of returning facilities to service after outages; limitations that may be imposed by equipment conditions, environmental, safety or other regulatory requirements; fuel supply or fuel transportation reductions or interruptions; transmission scheduling constraints; and catastrophic events such as fires, explosions, terrorism, cyber-threats, severe weather or other similar occurrences.  An equipment or system outage or constraint can, among other things:
 
·  
in the case of generation equipment, affect operating costs, increase capital requirements and costs, increase purchased power volumes and costs and reduce wholesale sales opportunities;
 
·  
in the case of transmission equipment, affect operating costs, increase capital requirements and costs, require changes in the source of generation and affect wholesale sales opportunities and the ability to meet regulatory reliability and security requirements;
 
·  
in the case of distribution systems, affect revenues and operating costs, increase capital requirements and costs, and affect the ability to meet regulatory service metrics and customer expectations; and
 
·  
in the case of information systems, affect the control and operations of generation, transmission, distribution and other business operations and processes, increase operating costs, increase capital requirements and costs, and affect the ability to meet regulatory reliability and security requirements and customer expectations.
 
With the exception of Hawthorn No. 5, which was substantially rebuilt in 2001, and Iatan No. 2, which was completed in 2010, all of KCP&L’s and GMO’s coal-fired generating units and its nuclear generating unit were constructed prior to 1986.  The age of these generating units increases the risk of unplanned outages, reduced generation output and higher maintenance expense.  Training, preventive maintenance and other programs have been implemented, but there is no assurance that these programs will prevent or minimize future breakdowns or failures of the Companies’ generation facilities or increased maintenance expense.
 
The Companies currently have general liability and property insurance in place to cover their facilities in amounts that management considers appropriate.  These policies, however, do not cover the Companies’ transmission or distribution systems, and the cost of repairing damage to these systems may adversely affect the Companies’ results of operations, financial position and cash flows.  Such policies are subject to certain limits and deductibles and do not include business interruption coverage.  Insurance coverage may not be available in the future at reasonable costs or on commercially reasonable terms, and the insurance proceeds received for any loss of, or any damage to, any of the Companies’ facilities may not be sufficient to restore the loss or damage.
 
These and other operating events may reduce the Companies’ revenues, increase their costs, or both, and may materially affect their results of operations, financial position and cash flows.
 
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The cost and schedule of construction projects may materially change and expected performance may not be achieved.
Great Plains Energy’s and KCP&L’s businesses are capital intensive.  The Companies currently have significant construction projects pending and may also have significant construction projects in the future.  The risks of any construction project include: that actual costs may exceed estimated costs due to inflation or other factors; risks associated with the incurrence of additional debt or the issuance of additional equity to fund such projects; delays that may occur in obtaining permits and materials; the failure of suppliers and contractors to perform as required under their contracts; inadequate availability or increased cost of equipment, materials or qualified craft labor; the scope, cost and timing of projects may change due to new or changed environmental requirements or other factors; and other events beyond the Companies’ control may occur that may materially affect the schedule, cost and performance of these projects.
 
These and other risks could materially increase the estimated costs of construction projects, delay the in-service dates of projects, adversely affect the performance of the projects, and/or require the Companies to purchase additional electricity to supply their respective retail customers until the projects are completed.  Thus, these risks may significantly affect the Companies’ results of operations, financial position and cash flows.
 
Failure of one or more generation plant co-owners to pay their share of construction or operations and maintenance costs could increase the Companies’ costs and capital requirements.
KCP&L owns 47% of Wolf Creek, 50% of La Cygne Station, 70% of Iatan No. 1 and 55% of Iatan No. 2.  GMO owns 18% of both Iatan units and 8% of Jeffrey Energy Center.  The remaining portions of these facilities are owned by other utilities that are contractually obligated to pay their proportionate share of capital and other costs.
 
While the ownership agreements provide that a defaulting co-owner’s share of the electricity generated can be sold by the non-defaulting co-owners, there is no assurance that the revenues received will recover the increased costs borne by the non-defaulting co-owners.  Occurrence of these or other events could materially increase the Companies’ costs and capital requirements.
 
The Companies are subject to information security risks and risks of unauthorized access to their systems.
In the course of their businesses, the Companies handle a range of system security and sensitive customer information. KCP&L and GMO are subject to laws and rules issued by different agencies concerning safeguarding and maintaining the confidentiality of this information.  A security breach of the utilities' information systems such as theft or the inappropriate release of certain types of information, including confidential customer information or system operating information, could have a material adverse impact on the results of operations, financial condition and cash flows of the Companies.
 
KCP&L and GMO operate in a highly regulated industry that requires the continued operation of sophisticated information technology systems and network infrastructure.  Despite implementation of security measures, the technology systems are vulnerable to disability, failures, or unauthorized access.  Such failures or breaches of the systems could impact the reliability of the utilities’ generation and transmission and distribution systems and also subject the Companies to financial harm.  If the technology systems were to fail or be breached and not recovered in a timely way, critical business functions could be impaired and sensitive confidential data could be compromised, which could have a material adverse impact on the Companies’ results of operations, financial condition and cash flows.
 
20
 
 
KCP&L is exposed to risks associated with the ownership and operation of a nuclear generating unit, which could result in an adverse effect on the Companies’ business and financial results.
KCP&L owns 47% of Wolf Creek.  The NRC has broad authority under federal law to impose licensing and safety-related requirements for the operation of nuclear generation facilities, including Wolf Creek.  In the event of non-compliance, the NRC has the authority to impose fines, shut down the facilities, or both, depending upon its assessment of the severity of the situation, until compliance is achieved.  Any revised safety requirements promulgated by the NRC could result in substantial capital expenditures at Wolf Creek.  In addition, the events at the Fukushima nuclear power plant following the 2011 earthquake and tsunami in Japan could result in increased regulation of the nuclear industry and the introduction of additional requirements with respect to emergency planning and ability to deal with natural disasters.
 
Wolf Creek has the lowest fuel cost per MWh of any of KCP&L's generating units.  An extended outage of Wolf Creek, whether resulting from NRC action, an incident at the plant or otherwise, could have a material adverse effect on KCP&L's results of operations, financial position and cash flows in the event KCP&L incurs higher replacement power and other costs that are not recovered through rates or insurance.  If a long-term outage occurred, the state regulatory commissions could reduce rates by excluding the Wolf Creek investment from rate base.  Wolf Creek was constructed prior to 1986 and the age of Wolf Creek increases the risk of unplanned outages and higher maintenance costs.
 
Ownership and operation of a nuclear generating unit exposes KCP&L to risks regarding decommissioning costs at the end of the unit's life.  KCP&L contributes annually based on estimated decommissioning costs to a tax-qualified trust fund to be used to decommission Wolf Creek.  The funding level assumes a projected level of return on trust assets.  If the actual return on trust assets is below the projected level or actual decommissioning costs are higher than estimated, KCP&L could be responsible for the balance of funds required and may not be allowed to recover the balance through rates.
 
KCP&L is also exposed to other risks associated with the ownership and operation of a nuclear generating unit, including, but not limited to, potential liability associated with the potential harmful effects on the environment and human health resulting from the operation of a nuclear generating unit and the storage, handling, disposal and potential release (by accident, through third-party actions or otherwise) of radioactive materials.  Under the structure for insurance among owners of nuclear generating units, KCP&L is also liable for potential retrospective premium assessments (subject to a cap) per incident at any commercial reactor in the country and losses in excess of insurance coverage.
 
Commodity Price Risks:
 
Changes in commodity prices could have an adverse effect on the Companies’ results of operations, financial position and cash flows.
The Companies engage in the wholesale and retail marketing of electricity and are exposed to risks associated with the price of electricity.  To the extent that exposure to the price of electricity is not successfully hedged, the Companies could experience losses associated with the changing market price for electricity.
 
Increases in fuel, fuel transportation and purchased power prices could have an adverse impact on the Companies’ costs.
KCP&L’s Kansas retail rates contain an energy cost adjustment mechanism.  KCP&L’s Missouri retail rates do not contain a similar provision.  GMO’s retail electric and steam rates contain a fuel adjustment mechanism under which most, but not all, of the difference between actual fuel and purchased power costs and the amount of fuel and purchased power costs provided in base rates is passed along to GMO’s customers.  As a result, the Companies are exposed to varying degrees of risk from changes in the market prices of fuel for generation of electricity and purchased power.  Changes in the Companies’ fuel mix due to electricity demand, plant availability, transportation issues, fuel prices, fuel availability and other factors can also adversely affect the Companies’ fuel and purchased power costs.
 
21
 
 
The Companies do not hedge their respective entire exposure from fuel and transportation price volatility.  Consequently, the Companies’ results of operations, financial position and cash flows may be materially impacted by changes in these prices unless and until increased costs are recovered in KCP&L’s Missouri retail rates.
 
Wholesale electricity sales affect revenues, creating earnings volatility.
The levels of the Companies’ wholesale sales depend on the wholesale market price, transmission availability and the availability of generation for wholesale sales, among other factors.  A substantial portion of wholesale sales are made in the spot market, and thus the Companies have immediate exposure to wholesale price changes.  Wholesale power prices can be volatile and generally increase in times of high regional demand and high natural gas prices.  Conversely, wholesale power prices generally decrease in times of low regional demand and low natural gas prices.  While an allocated portion of wholesale sales are reflected in KCP&L’s Kansas energy cost adjustment and GMO’s fuel adjustment mechanisms, KCP&L’s Missouri rates are set on an estimated amount of wholesale sales.  KCP&L will not recover any shortfall in non-firm wholesale electric sales margin from the level included in Missouri rates and any amount above the level reflected in Missouri retail rates will be returned to Missouri retail customers in a future rate case.  Declines in wholesale market price, availability of generation, transmission constraints in the wholesale markets, or low wholesale demand could reduce the Companies’ wholesale sales and may materially affect the Companies’ results of operations, financial conditions and cash flows.
 
Litigation Risks:
 
The outcome of legal proceedings cannot be predicted.  An adverse finding could have a material adverse effect on the Companies’ results of operations, financial position and cash flows.
The Companies are party to various material litigation and regulatory matters arising out of their business operations.  The ultimate outcome of these matters cannot presently be determined, nor, in many cases, can the liability that could potentially result from a negative outcome in each case be reasonably estimated.  The liability that the Companies may ultimately incur with respect to any of these cases in the event of a negative outcome may be in excess of amounts currently reserved and insured against with respect to such matters.
 
ITEM 1B.  UNRESOLVED STAFF COMMENTS
 
None.
 
22
 
 
ITEM 2.  PROPERTIES
 
Electric Utility Generation Resources
                           
           
Year
Estimated 2012
 
Primary
 
   
Unit
 
Location
 
Completed
MW Capacity
 
Fuel
 
Base Load
Iatan No. 2
 
Missouri
 
2010
 
       482
 
(a)
 
Coal
 
   
Wolf Creek
 
Kansas
 
1985
 
       547
 
(a)
 
Nuclear
 
   
Iatan No. 1
 
Missouri
 
1980
 
       493
 
(a)
 
Coal
 
   
La Cygne No. 2
 
Kansas
 
1977
 
       343
 
(a)
 
Coal
 
   
La Cygne No. 1
 
Kansas
 
1973
 
       368
 
(a)
 
Coal
 
   
Hawthorn No. 5 (b)
 
Missouri
 
1969
 
       564
     
Coal
 
   
Montrose No. 3
 
Missouri
 
1964
 
       176
     
Coal
 
   
Montrose No. 2
 
Missouri
 
1960
 
       164
     
Coal
 
   
Montrose No. 1
 
Missouri
 
1958
 
       170
     
Coal
 
Peak Load
West Gardner Nos. 1, 2, 3 and 4
 
Kansas
 
2003
 
       310
     
Natural Gas
   
Osawatomie
 
Kansas
 
2003
 
         75
     
Natural Gas
   
Hawthorn Nos. 6 and 9
 
Missouri
 
2000
 
       232
     
Natural Gas
   
Hawthorn No. 8
 
Missouri
 
2000
 
         77
     
Natural Gas
   
Hawthorn No. 7
 
Missouri
 
2000
 
         77
     
Natural Gas
   
Northeast Black Start Unit
 
Missouri
 
1985
 
           2
     
Oil
 
   
Northeast Nos. 17 and 18
 
Missouri
 
1977
 
       110
     
Oil
 
   
Northeast Nos. 13 and 14
 
Missouri
 
1976
 
       105
     
Oil
 
   
Northeast Nos. 15 and 16
 
Missouri
 
1975
 
         94
     
Oil
 
   
Northeast Nos. 11 and 12
 
Missouri
 
1972
 
         99
     
Oil
 
Wind
Spearville 2 Wind Energy Facility (c)
 
Kansas
 
2010
 
           4
     
Wind
 
   
Spearville Wind Energy Facility (d)
 
Kansas
 
2006
 
           8
     
Wind
 
Total KCP&L
           
    4,500
         
Base Load
Iatan No. 2
 
Missouri
 
2010
 
       159
 
(a)
 
Coal
 
   
Iatan No. 1
 
Missouri
 
1980
 
       127
 
(a)
 
Coal
 
    Jeffrey Energy Center Nos. 1, 2 and 3  
Kansas
 
1978, 1980, 1983
  174  
(a)
 
Coal
   
Sibley Nos. 1, 2 and 3
 
Missouri
 
1960, 1962, 1969
  463      
Coal
   
Lake Road Nos. 2 and 4
 
Missouri
 
1957, 1967
 
       119
     
Coal and Natural Gas
Peak Load
South Harper Nos. 1, 2 and 3
 
Missouri
 
2005
 
       317
     
Natural Gas
   
Crossroads Energy Center
 
Mississippi
 
2002
 
       297
     
Natural Gas
   
Ralph Green No. 3
 
Missouri
 
1981
 
         71
     
Natural Gas
   
Greenwood Nos. 1, 2, 3 and 4
 
Missouri
 
1975-1979
 
       253
     
Natural Gas/Oil
   
Lake Road No. 5
 
Missouri
 
1974
 
         65
     
Natural Gas/Oil
   
Lake Road Nos. 1 and 3
 
Missouri
 
1951, 1962
 
         33
     
Natural Gas/Oil
   
Lake Road Nos. 6 and 7
 
Missouri
 
1989, 1990
 
         42
     
Oil
 
   
Nevada
 
Missouri
 
1974
 
         19
     
Oil
 
Total GMO
           
    2,139
         
Total Great Plains Energy
         
    6,639
         
(a)
Share of a jointly owned unit.
                     
(b)
The Hawthorn Generating Station returned to commercial operation in 2001 with a new boiler, air quality control equipment and
 
an uprated turbine following a 1999 explosion.
                     
(c)
The 48 MW Spearville 2 Wind Energy Facility's accredited capacity is 4 MW pursuant to SPP reliability standards.
 
(d)
The 100.5 MW Spearville Wind Energy Facility's accredited capacity is 8 MW pursuant to SPP reliability standards.
 
 
23
 
 
KCP&L owns 50% of La Cygne Nos. 1 and 2, 70% of Iatan No. 1, 55% of Iatan No. 2 and 47% of Wolf Creek.  GMO owns 18% of Iatan Nos. 1 and 2 and 8% of Jeffrey Energy Center Nos. 1, 2 and 3.

Electric Utility Transmission and Distribution Resources
Electric utility’s electric transmission system interconnects with systems of other utilities for reliability and to permit wholesale transactions with other electricity suppliers.  Electric utility has approximately 3,600 circuit miles of transmission lines, 15,600 circuit miles of overhead distribution lines and 6,600 circuit miles of underground distribution lines in Missouri and Kansas.  Electric utility has all material franchise rights necessary to sell electricity within its retail service territory.  Electric utility’s transmission and distribution systems are continuously monitored for adequacy to meet customer needs.  Management believes the current systems are adequate to serve customers.
 
Electric Utility General
Electric utility’s generating plants are located on property owned (or co-owned) by KCP&L or GMO, except the Spearville Wind Energy Facilities which are located on easements and the Crossroads Energy Center and South Harper which are contractually controlled.  Electric utility’s service centers, electric substations and a portion of its transmission and distribution systems are located on property owned or leased by electric utility.  Electric utility’s transmission and distribution systems are for the most part located above or underneath highways, streets, other public places or property owned by others.  Electric utility believes that it has satisfactory rights to use those places or properties in the form of permits, grants, easements, licenses or franchise rights; however, it has not necessarily undertaken efforts to examine the underlying title to the land upon which the rights rest.  Great Plains Energy’s and KCP&L’s headquarters are located in leased office space.
 
Substantially all of the fixed property and franchises of KCP&L, which consist principally of electric generating stations, electric transmission and distribution lines and systems, and buildings (subject to exceptions, reservations and releases), are subject to a General Mortgage Indenture and Deed of Trust dated as of
December 1, 1986.  Mortgage bonds totaling $642.5 million were outstanding at December 31, 2011.
 
Substantially all of the fixed property and franchises of GMO’s St. Joseph Light & Power division is subject to a General Mortgage Indenture and Deed of Trust dated as of April 1, 1946.  Mortgage bonds totaling $11.2 million were outstanding at December 31, 2011.
 
ITEM 3.  LEGAL PROCEEDINGS
 
Other Proceedings
The Companies are parties to various lawsuits and regulatory proceedings in the ordinary course of their respective businesses.  For information regarding material lawsuits and proceedings, see Notes 5, 14 and 15 to the consolidated financial statements.  Such descriptions are incorporated herein by reference.
 
ITEM 4.  MINE SAFETY DISCLOSURES
 
Not applicable.
 
24
 
 
PART II
 
ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
 
GREAT PLAINS ENERGY
Great Plains Energy’s common stock is listed on the New York Stock Exchange under the symbol “GXP”.  At February 21, 2012, Great Plains Energy’s common stock was held by 20,770 shareholders of record.  Information relating to market prices and cash dividends on Great Plains Energy's common stock is set forth in the following table.
                                 
 
Common Stock Price Range (a)
 
Common Stock
 
2011
 
2010
 
Dividends Declared
Quarter
High
Low
 
High
Low
 
2012
2011
2010
First
$ 20.08   $ 18.94     $ 19.60   $ 17.43     $ 0.2125
  (b)
$ 0.2075   $ 0.2075  
Second
  21.17     19.70       19.63     16.85             0.2075     0.2075  
Third
  21.24     16.53       19.06     16.95             0.2075     0.2075  
Fourth
  21.97     18.68       19.63     18.58             0.2125     0.2075  
(a) Based on closing stock prices.
                                   
(b) Declared February 7, 2012, and payable March 20, 2012, to shareholders of record as of February 28, 2012.
 

Dividend Restrictions
For information regarding dividend restrictions, see Note 12 to the consolidated financial statements.
 
Purchases of Equity Securities
The following table provides information regarding purchases by the Company of its equity securities during the fourth quarter of 2011.
                               
Issuer Purchases of Equity Securities
                         
Maximum Number
                 
Total Number of
 
(or Approximate
                 
Shares (or Units)
 
Dollar Value) of
 
Total
         
Purchased as
 
Shares (or Units)
 
Number of
  Average  
Part of Publicly
 
that May Yet Be
 
Shares
  Price Paid  
Announced
 
Purchased Under
 
(or Units)
  per Share  
Plans or
 
the Plans or
Month
Purchased
  (or Unit)  
Programs
 
Programs
October 1 - 31
 
              -
    $
         -
     
            -
     
 N/A
 
November 1 - 30
 
         210
  (1)
   
        19.97
     
            -
     
 N/A
 
December 1 - 31
 
              -
     
               -
     
            -
     
 N/A
 
Total
 
         210
    $
   19.97
     
            -
     
 N/A
 
(1) Represents restricted common shares surrendered to the Company following the resignation of a certain officer.

KCP&L
KCP&L is a wholly owned subsidiary of Great Plains Energy, which holds the one share of issued and outstanding KCP&L common stock.
 
Dividend Restrictions
For information regarding dividend restrictions, see Note 12 to the consolidated financial statements.
 
25
 
 
ITEM 6.  SELECTED FINANCIAL DATA
                     
Year Ended December 31
2011
2010
2009
2008
2007
Great Plains Energy (a)
(dollars in millions except per share amounts)
Operating revenues
$ 2,318   $ 2,256   $ 1,965   $ 1,670   $ 1,293  
Income from continuing operations (b)
$ 174   $ 212   $ 152   $ 120   $ 121  
Net income attributable to Great Plains Energy
$ 174   $ 212   $ 150   $ 155   $ 159  
Basic earnings per common
                             
share from continuing operations
$ 1.27   $ 1.55   $ 1.16   $ 1.16   $ 1.41  
Basic earnings per common share
$ 1.27   $ 1.55   $ 1.15   $ 1.51   $ 1.86  
Diluted earnings per common
                             
share from continuing operations
$ 1.25   $ 1.53   $ 1.15   $ 1.16   $ 1.40  
Diluted earnings per common share
$ 1.25   $ 1.53   $ 1.14   $ 1.51   $ 1.85  
Total assets at year end
$ 9,118   $ 8,818   $ 8,483   $ 7,869   $ 4,832  
Total redeemable preferred stock, mandatorily
                             
redeemable preferred securities and long-
                             
term debt (including current maturities)
$ 3,544   $ 3,428   $ 3,214   $ 2,627   $ 1,103  
Cash dividends per common share
$ 0.835   $ 0.83   $ 0.83   $ 1.66   $ 1.66  
SEC ratio of earnings to fixed charges
  2.03     2.28     1.81     2.26     2.53  
                               
KCP&L
                             
Operating revenues
$ 1,558   $ 1,517   $ 1,318   $ 1,343   $ 1,293  
Net income
$ 136   $ 163   $ 129   $ 125   $ 157  
Total assets at year end
$ 6,292   $ 6,026   $ 5,702   $ 5,229   $ 4,292  
Total redeemable preferred stock, mandatorily
                             
redeemable preferred securities and long-
                             
term debt (including current maturities)
$ 1,915   $ 1,780   $ 1,780   $ 1,377   $ 1,003  
SEC ratio of earnings to fixed charges
  2.52     2.86     2.44     2.87     3.53  
                               
(a) Great Plains Energy's results include GMO only from the July 14, 2008, acquisition date.              
(b) This amount is before income (loss) from discontinued operations, net of income taxes, of $(1.5) million, $35.0 million
  and $38.3 million in 2009 through 2007, respectively.                          

ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
GREAT PLAINS ENERGY INCORPORATED
 
EXECUTIVE SUMMARY
 
Description of Business
Great Plains Energy is a public utility holding company and does not own or operate any significant assets other than the stock of its subsidiaries.  Great Plains Energy’s direct subsidiaries with operations or active subsidiaries are KCP&L and GMO.  Great Plains Energy’s sole reportable business segment is electric utility for the periods presented.
 
Electric utility consists of KCP&L, a regulated utility, and GMO’s regulated utility operations, which include its Missouri Public Service and St. Joseph Light & Power divisions.  Electric utility has over 6,600 MWs of generating capacity and engages in the generation, transmission, distribution and sale of electricity to approximately 823,000 customers in the states of Missouri and Kansas.  Electric utility’s retail electricity rates are below the national average of investor-owned utilities.
 
26
 
 
2011 Earnings Overview
Great Plains Energy’s 2011 earnings available for common shareholders decreased to $172.8 million or $1.25 per share from $210.1 million or $1.53 per share in 2010.  Several of KCP&L’s coal-fired power plants were impacted by flooding along the Missouri River in 2011, which decreased gross margin by an estimated $16 million due to coal conservation activities and increased other operating expenses $3.3 million.  Gross margin also decreased due to unfavorable weather and demand, an estimated $11 million from the impact of an extended refueling outage at Wolf Creek, and $7.5 million from increased coal transportation costs not recovered in KCP&L’s Missouri retail rates where there is no fuel recovery mechanism.  Also in 2011, Great Plains Energy recognized $12.7 million of expense related to a voluntary separation program and a $13.1 million increase in electric utility’s general taxes driven by higher property taxes.
 
Partially offsetting these decreases were new retail rates in Kansas effective December 1, 2010, and Missouri effective May 4, 2011, for KCP&L and June 25, 2011, for GMO.  In 2010, electric utility recognized a $16.8 million pre-tax loss representing KCP&L’s and GMO’s combined share of construction costs for the Iatan No. 1 environmental equipment and the Iatan No. 2 construction project.
 
Gross margin is a financial measure that is not calculated in accordance with Generally Accepted Accounting Principles (GAAP).  See the explanation of gross margin and the reconciliation to GAAP operating revenues under Great Plains Energy’s Results of Operations for further information.
 
KCP&L Kansas Rate Case Proceedings
In November 2010, KCC issued an order, effective December 1, 2010, for KCP&L, authorizing an increase in annual revenues of $21.8 million, a return on equity of 10.0%, an equity ratio of approximately 49.7% and a Kansas jurisdictional rate base of $1.781 billion.  The annual revenue increase was subsequently adjusted by KCC in a January 2011 reconsideration order to $22.0 million.  In February 2011, KCC issued an order granting KCP&L and another party to the case their respective petitions for reconsideration regarding rate case expenses.  In January 2012, KCC issued its order allowing approximately $0.2 million of additional rate case expenses to be included in rates and amortized over three years.  The rates authorized by KCC are effective unless and until modified by KCC or stayed by a court.
 
KCP&L Missouri Rate Case Proceedings
On February 27, 2012, KCP&L filed an application with the MPSC to request an increase of its retail rates of $105.7 million, with a return on equity of 10.4% and a rate-making equity ratio of 52.5%.  The request includes recovery of costs related to improving and maintaining infrastructure to continue to be able to provide reliable electric service and also includes a lower annual offset to the revenue requirement for the Missouri jurisdictional portion of KCP&L’s annual non-firm wholesale electric sales margin (wholesale margin offset).  KCP&L currently expects that it will not be able to achieve the $45.9 million wholesale margin offset currently reflected in its retail rates due to a decline in wholesale power prices, which is being driven by low natural gas prices.
 
On April 12, 2011, the MPSC issued an order and on April 14, 2011, the MPSC Staff filed a report which quantified an authorized revenue increase of approximately $34.8 million on an annual basis, which reflects a wholesale margin offset of approximately $45.9 million and authorizes a return on equity of 10.0%, an equity ratio of approximately 46.3% and a Missouri jurisdictional rate base of approximately $2.0 billion effective May 4, 2011.  If the actual Missouri jurisdiction wholesale margin amount exceeds the $45.9 million level reflected in the MPSC order, the difference will be recorded as a regulatory liability and will be returned, with interest, to KCP&L Missouri customers in a future rate case.  The MPSC order provides the opportunity for KCP&L to retain a larger amount of non-firm wholesale electric sales margin than KCP&L proposed; however, there are no assurances that KCP&L will achieve the $45.9 million wholesale margin offset amount and there are no means for KCP&L to recover any shortfall through its retail rates unless the MPSC authorizes future recovery.
 
27
 
 
As a result of disallowances in the April 2011 MPSC order, KCP&L recognized losses of $1.5 million for construction costs related to Iatan No. 2 and the Iatan No. 1 environmental project during 2011.  KCP&L also recorded a $2.4 million loss for other disallowed costs in the MPSC order.
 
In a related order, the MPSC required KCP&L and GMO to apply to the Internal Revenue Service (IRS) to reallocate approximately $26.5 million of Iatan No. 2 qualifying advance coal project tax credits from KCP&L to GMO.  KCP&L and GMO did apply to the IRS but in September 2011, the IRS denied KCP&L’s and GMO’s request.  The MPSC has indicated it will consider the ratemaking treatment of the tax credits in a future rate case.  Certain ratemaking treatments that may be pursued by the MPSC could trigger the loss or repayment to the IRS of a portion of unamortized deferred investment tax credits.  At December 31, 2011, KCP&L and GMO had $127.9 million and $3.3 million, respectively, of unamortized deferred investment tax credits.
 
GMO Missouri Rate Case Proceedings
On February 27, 2012, GMO filed an application with the MPSC to request an increase of its retail rates of $58.3 million for its Missouri Public Service division and $25.2 million for its L&P division, with a return on equity of 10.4% and a rate-making equity ratio of 52.5%.  The requests include recovery of costs related to improving and maintaining infrastructure to continue to be able to provide reliable electric service, costs related to energy efficiency and demand side management programs, and increased fuel costs.
 
In December 2011, GMO filed a request with the MPSC seeking to recover costs for new and enhanced energy efficiency and demand side management programs under the Missouri Energy Efficiency Investment Act (MEEIA).  If approved, the costs would be recovered through a rider mechanism and GMO would reduce its request to increase retail rates that it filed with the MPSC on February 27, 2012.  A decision on the MEEIA request is expected in the second quarter of 2012.
 
On May 4, 2011, the MPSC issued an order and on May 10, 2011, the MPSC Staff filed a report which quantified authorized revenue increases on an annual basis of $30.1 million for GMO’s Missouri Public Service division and $29.3 million for GMO’s L&P division.  The MPSC order authorized a return on equity of 10.0%, an equity ratio of approximately 46.6% and a Missouri jurisdictional rate base of $1.76 billion.  In response to applications for clarification and rehearing of the MPSC order, the MPSC on May 27, 2011, issued an order of clarification and modification.  The modified MPSC order revised the authorized annual revenue increases to approximately $35.7 million for GMO’s Missouri Public Service division and approximately $29.8 million for GMO’s L&P division, resulting primarily from a clarification of the amount of fuel costs shifted from GMO’s fuel adjustment clause to base rates.  However, because the MPSC authorized an annual revenue increase that was greater than the amount originally requested by GMO for its L&P division and communicated to GMO’s L&P customers, the modified MPSC order deferred approximately $7.7 million of the L&P division increase, which is the amount over GMO’s requested $22.1 million increase for that division, and will phase in the deferred revenue amount in equal parts over a two-year period, plus carrying costs.  In addition, GMO shall be allowed to recover the revenue which would have been allowed in the absence of a phase-in.

As a result of disallowances in the May 2011 MPSC order, GMO recognized losses of $0.8 million for construction costs related to Iatan No. 2 and the Iatan No. 1 environmental project during 2011.  GMO also recorded a $1.5 million loss for other disallowed costs in the MPSC order.
 
Additionally, with respect to GMO’s Missouri Public Service division, the MPSC concluded that GMO’s decision to add Crossroads Energy Center (Crossroads) to its generation asset resources was prudent and reasonable; however, the order disallowed from rate base approximately $50 million for Crossroads, disallowed $4.9 million in associated annual transmission expense and offset rate base by approximately $15 million to reflect accumulated deferred taxes associated with Crossroads.  GMO’s request included a net plant amount of approximately $104 million for Crossroads.  In assessing the impact of the Crossroads disallowances, management considered that KCP&L’s and GMO’s generation asset resources include a diverse fuel mix consisting primarily of coal and nuclear fuel providing base load generation with natural gas facilities such as
 
28
 
 
Crossroads to provide critical peaking and capacity support.  This combined collection of generating assets meets KCP&L’s and GMO’s service obligations and produces joint cash flows based on system-wide average costs.  Great Plains Energy conducted an analysis to assess the recoverability of the combined collection of generation asset resources and determined that no potential impairment exists.
 
The rates established by the modified MPSC order took effect on June 25, 2011.  On June 24, 2011, GMO filed its appeal of the MPSC order with the Cole County, Missouri, Circuit Court regarding the Crossroads issues discussed above.  Other parties to the case have also filed appeals of the MPSC order.  However, the rates authorized by the modified MPSC order will be effective unless and until modified by the MPSC or stayed by a court.
 
GMO Fuel Adjustment Clause (FAC) Prudence Review
GMO’s electric retail rates contain an FAC tariff under which 95% of the difference between actual fuel cost, purchased power costs and off-system sales margin and the amount provided in base rates for these costs is passed along to GMO’s customers.  The MPSC requires prudence reviews of the FAC no less frequently than at 18-month intervals.  On November 28, 2011, the MPSC staff filed its prudence review report for the 18-month prudence review period covering June 1, 2009 through November 30, 2010.  The MPSC staff recommended to the MPSC to order GMO to refund approximately $19 million, plus interest, to customers through an adjustment to its FAC because the MPSC staff asserts that GMO was imprudent in its use of natural gas hedges to mitigate risk associated with its future purchases in the spot power market.  GMO is disputing the MPSC staff’s claim of imprudence and filed its testimony on February 22, 2012.  A hearing is scheduled for May 16 – 17, 2012, with an order expected in June 2012.
 
Transmission Investment Opportunities
In September 2010, GMO accepted a Notification to Construct from SPP for the Missouri portion of a 175-mile, 345kV transmission line in GMO’s service territory from Sibley, Missouri to Nebraska City, Nebraska with an estimated cost of about $380 million for GMO’s portion of the line and an expected 2017 in-service date.  This line is one of a number of priority projects that the SPP has developed as part of its transmission expansion plans for the region.  In June 2010, FERC approved the SPP’s proposed cost allocation method for these projects.  KCP&L has also accepted a Notification to Construct from SPP for a 30-mile, 345kV transmission line, with estimated construction costs of $54 million and an expected 2015 in-service date, from KCP&L’s Iatan generating station to KCP&L’s Nashua substation.  GMO and KCP&L have the obligation to build their separate lines, which may be done solely or with other entities, unless the obligation is transferred to another qualified transmission owner.  GMO and KCP&L are evaluating alternative courses of action.  SPP retains the authority to revise or withdraw existing Notifications to Construct for transmission projects based upon emerging transmission plans and the associated needs for specific projects.
 
Wolf Creek Outage
On January 13, 2012, a breaker in a substation located at Wolf Creek failed.  This failure was immediately followed by a loss of station power to Wolf Creek resulting in an unscheduled shutdown of Wolf Creek.  Wolf Creek is expected to resume normal operations in March 2012 following the completion of repairs.  This schedule assumes no discovery during the course of repairs of additional required work, and that all requirements of the NRC for resumption of normal operations are satisfied.  Additional maintenance expenses and capital expenditures are expected as a result of this unscheduled outage.
 
29
 
 
ENVIRONMENTAL MATTERS
 
Electric utility’s current generation capacity is over 50% coal-fired and subject to extensive environmental regulation.  Approximately 60% of electric utility’s coal-fired generation facilities have emission control equipment installed.  Current plans call for 85% of the coal-fired facilities to have emission control equipment installed by approximately 2016.  It is less likely that the remaining coal-fired units will have emission control equipment installed and they have a combined remaining net book value of approximately 1.5% of the Company’s $7.1 billion utility plant balance.  In the event that the Company decides it is not cost effective to proceed with these less likely projects and determines that early retirement is the most prudent course of action for these generating facilities, the Company expects that the costs would continue to be capitalized and recovered in rates.  However, there is no assurance that these investments would be recovered in rates and any amount not recovered would be recorded as a loss when such loss becomes probable.  See Note 14 to the consolidated financial statements for additional information regarding environmental matters.
 
RELATED PARTY TRANSACTIONS
 
See Note 17 to the consolidated financial statements for information regarding related party transactions.
 
CRITICAL ACCOUNTING POLICIES
 
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect reported amounts and related disclosures.  Management considers an accounting estimate to be critical if it requires assumptions to be made that were uncertain at the time the estimate was made and changes in the estimate or different estimates that could have been used could have a material impact on Great Plains Energy’s results of operations and financial position.  Management has identified the following accounting policies as critical to the understanding of Great Plains Energy’s results of operations and financial position.  Management has discussed the development and selection of these critical accounting policies with the Audit Committee of the Great Plains Energy Board of Directors (Board).
 
Pensions
Great Plains Energy and KCP&L incur significant costs in providing non-contributory defined pension benefits.  The costs are measured using actuarial valuations that are dependent upon numerous factors derived from actual plan experience and assumptions of future plan experience.
 
Pension costs are impacted by actual employee demographics (including age, life expectancies, compensation levels and employment periods), earnings on plan assets, the level of contributions made to the plan, and plan amendments.  In addition, pension costs are also affected by changes in key actuarial assumptions, including anticipated rates of return on plan assets and the discount rates used in determining the projected benefit obligation and pension costs.
 
The assumed rate of return on plan assets was developed based on the weighted-average of long-term returns forecast for the expected portfolio mix of investments held by the plan.  The assumed discount rate was selected based on the prevailing market rate of fixed income debt instruments with maturities matching the expected timing of the benefit obligation.  These assumptions, updated annually at the measurement date, are based on management’s best estimates and judgment; however, material changes may occur if these assumptions differ from actual events.  See Note 8 to the consolidated financial statements for information regarding the assumptions used to determine benefit obligations and net costs.
 
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The following table reflects the sensitivities associated with a 0.5% increase or a 0.5% decrease in key actuarial assumptions.  Each sensitivity reflects the impact of the change based on a change in that assumption only.
               
       
Impact on
Impact on
       
Projected
2011
 
Change in
Benefit
Pension
Actuarial assumption
Assumption
Obligation
Expense
       
(millions)
Discount rate
  0.5 %
increase
$ (64.4 ) $ (5.1 )
Rate of return on plan assets
  0.5 %
increase
  -     (2.8 )
Discount rate
  0.5 %
decrease
  69.1     5.2  
Rate of return on plan assets
  0.5 %
decrease
  -     2.8  
                     
Pension expense for KCP&L is recorded in accordance with rate orders from the MPSC and KCC.  The orders allow the difference between pension costs under GAAP and pension costs for ratemaking to be recorded as a regulatory asset or liability with future ratemaking recovery or refunds, as appropriate.  The impact on 2011 pension expense in the table above reflects the impact on GAAP pension costs.  Under the Companies’ rate agreements, any increase or decrease would be deferred in a regulatory asset or liability for future ratemaking treatment.  KCP&L recorded 2011 pension expense of $42.6 million after allocations to the other joint owners of generating facilities and capitalized amounts in accordance with the MPSC and KCC rate orders.  GMO records pension expense in accordance with rate orders from the MPSC.  The difference between this expense and GAAP expense is recorded as a regulatory asset or liability.  See Note 8 to the consolidated financial statements for additional discussion of the accounting for pensions.
 
The Company's projected 2012 weighted average long-term rate of return on plan assets is 7.3%, unchanged from 2011.  Market conditions and interest rates significantly affect the future assets and liabilities of the plan.  It is difficult to predict future pension costs, changes in pension liability and cash funding requirements due to volatile market conditions.
 
Regulatory Matters
Great Plains Energy and KCP&L have recorded assets and liabilities on their consolidated balance sheets resulting from the effects of the ratemaking process, which would not otherwise be recorded under GAAP.  Regulatory assets represent incurred costs that are probable of recovery from future revenues.  Regulatory liabilities represent future reductions in revenues or refunds to customers.
 
Management regularly assesses whether regulatory assets and liabilities are probable of future recovery or refund by considering factors such as decisions by the MPSC, KCC or FERC in electric utility’s rate case filings; decisions in other regulatory proceedings, including decisions related to other companies that establish precedent on matters applicable to electric utility; and changes in laws and regulations.  If recovery or refund of regulatory assets or liabilities is not approved by regulators or is no longer deemed probable, these regulatory assets or liabilities are recognized in the current period results of operations.  Electric utility’s continued ability to meet the criteria for recording regulatory assets and liabilities may be affected in the future by restructuring and deregulation in the electric industry or changes in accounting rules.  In the event that the criteria no longer applied to all or a portion of electric utility’s operations, the related regulatory assets and liabilities would be written off unless an appropriate regulatory recovery mechanism were provided.  Additionally, these factors could result in an impairment on utility plant assets.  See Note 5 to the consolidated financial statements for additional information.
 
Impairments of Assets, Intangible Assets and Goodwill
Long-lived assets and intangible assets subject to amortization are required to be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable as prescribed under GAAP.
 
31
 
 
Accounting rules require goodwill to be tested for impairment annually and when an event occurs indicating the possibility that an impairment exists.  The goodwill impairment test is a two step process.  The first step compares the fair value of a reporting unit to its carrying amount, including goodwill, to identify potential impairment.  If the carrying amount exceeds the fair value of the reporting unit, the second step of the test is performed, consisting of assignment of the reporting unit’s fair value to its assets and liabilities to determine an implied fair value of goodwill, which is compared to the carrying amount of goodwill to determine the impairment loss, if any, to be recognized in the financial statements.  Great Plains Energy’s regulated electric utility operations are considered one reporting unit for assessment of impairment, as they are included within the same operating segment and have similar economic characteristics.
 
The annual impairment test for the $169.0 million of GMO acquisition goodwill was conducted on September 1, 2011.  Fair value of the reporting unit exceeded the carrying amount by over $800 million, including goodwill; therefore, there was no impairment of goodwill.
 
The determination of fair value of the reporting unit consisted of two valuation techniques: an income approach consisting of a discounted cash flow analysis and a market approach consisting of a determination of reporting unit invested capital using market multiples derived from the historical revenue, EBITDA and net utility asset values and market prices of stock of electric and gas company regulated peers.  The results of the two techniques were evaluated and weighted to determine a point within the range that management considered representative of fair value for the reporting unit, which involves a significant amount of management judgment.
 
The discounted cash flow analysis is most significantly impacted by two assumptions: estimated future cash flows and the discount rate applied to those cash flows.  Management determined the appropriate discount rate to be based on the reporting unit’s weighted average cost of capital (WACC).  The WACC takes into account both the cost of equity and after-tax cost of debt.  Estimated future cash flows are based on Great Plains Energy’s internal business plan, which assumes the occurrence of certain events in the future, such as the outcome of future rate filings, future approved rates of return on equity, anticipated earnings/returns related to future capital investments, continued recovery of cost of service and the renewal of certain contracts.  Management also makes assumptions regarding the run rate of operations, maintenance and general and administrative costs based on the expected outcome of the aforementioned events.  Should the actual outcome of some or all of these assumptions differ significantly from the current assumptions, revisions to current cash flow assumptions could cause the fair value of Great Plains Energy’s reporting unit under the income approach to be significantly different in future periods and could result in a future impairment charge to goodwill.
 
The market approach analysis is most significantly impacted by management’s selection of relevant electric and gas company regulated peers as well as the determination of an appropriate control premium to be added to the calculated invested capital of the reporting unit, as control premiums associated with a controlling interest are not reflected in the quoted market price of a single share of stock.  Management determined an appropriate control premium by using an average of control premiums for recent acquisitions in the industry.  Changes in results of peer companies, selection of different peer companies and future acquisitions with significantly different control premiums could result in a significantly different fair value of Great Plains Energy’s reporting unit.
 
Income Taxes
Income taxes are accounted for using the asset/liability approach.  Deferred tax assets and liabilities are determined based on the temporary differences between the financial reporting and tax bases of assets and liabilities, applying enacted statutory tax rates in effect for the year in which the differences are expected to reverse.  Deferred investment tax credits are amortized ratably over the life of the related property.  Deferred tax assets are also recorded for net operating loss, capital loss and tax credit carryforwards.  The Company is required to estimate the amount of taxes payable or refundable for the current year and the deferred tax liabilities and assets for future tax consequences of events reflected in the Company’s consolidated financial statements or tax returns.  This process requires management to make assessments regarding the timing and probability of the
 
32
 
 
ultimate tax impact.  The Company records valuation allowances on deferred tax assets if it is determined that it is more likely than not that the asset will not be realized.
 
Additionally, the Company establishes reserves for uncertain tax positions based upon management’s judgment regarding potential future challenges to those positions.  The accounting estimates related to the liability for uncertain tax positions require management to make judgments regarding the sustainability of each uncertain tax position based on its technical merits.  If it is determined that it is more likely than not a tax position will be sustained based on its technical merits, the impact of the position is recorded in the Company’s consolidated financial statements at the largest amount that is greater than fifty percent likely of being realized upon ultimate settlement.  These estimates are updated at each reporting date based on the facts, circumstances and information available.  Management is also required to assess at each reporting date whether it is reasonably possible that any significant increases or decreases to the unrecognized tax benefits will occur during the next twelve months.  See Note 20 to the consolidated financial statements for additional information.
 
GREAT PLAINS ENERGY RESULTS OF OPERATIONS
 
The following table summarizes Great Plains Energy’s comparative results of operations.
             
 
2011
2010
2009
 
(millions)
Operating revenues
$ 2,318.0   $ 2,255.5   $ 1,965.0  
Fuel
  (483.8 )   (430.7 )   (405.5 )
Purchased power
  (203.4 )   (213.8 )   (183.7 )
Transmission of electricity by others
  (30.2 )   (27.4 )   (26.9 )
Gross margin (a)
  1,600.6     1,583.6     1,348.9  
Other operating expenses
  (835.0 )   (779.7 )   (726.6 )
Voluntary separation program
  (12.7 )   -     -  
Depreciation and amortization
  (273.1 )   (331.6 )   (302.2 )
Operating income
  479.8     472.3     320.1  
Non-operating income and expenses
  (2.3 )   24.4     42.6  
Interest charges
  (218.4 )   (184.8 )   (180.9 )
Income tax expense
  (84.8 )   (99.0 )   (29.5 )
Loss from equity investments
  (0.1 )   (1.0 )   (0.4 )
Income from continuing operations
  174.2     211.9     151.9  
Loss from discontinued operations
  -     -     (1.5 )
Net income
  174.2     211.9     150.4  
Less: Net (income) loss attributable to noncontrolling interest
  0.2     (0.2 )   (0.3 )
Net income attributable to Great Plains Energy
  174.4     211.7     150.1  
Preferred dividends
  (1.6 )   (1.6 )   (1.6 )
Earnings available for common shareholders
$ 172.8   $ 210.1   $ 148.5  
(a) Gross margin is a non-GAAP financial measure. See explanation of gross margin below.
 

2011 compared to 2010
Great Plains Energy’s 2011 earnings available for common shareholders decreased to $172.8 million, or $1.25 per share, from $210.1 million, or $1.53 per share in 2010.
 
Electric utility’s net income decreased $35.4 million in 2011 compared to 2010.  Flooding along the Missouri River in 2011 decreased gross margin by an estimated $16 million due to coal conservation activities and increased other operating expenses $3.3 million.  Gross margin also decreased due to unfavorable weather and demand, an estimated $11 million expense from the impact of an extended refueling outage at Wolf Creek and $7.5 million from increased coal transportation costs not recovered in KCP&L’s Missouri retail rates.  Also in 2011, electric utility recognized $12.7 million of expense related to a voluntary separation program and general
 
33
 
 
taxes increased $13.1 million driven by higher property taxes.  Partially offsetting these decreases were new retail rates in Kansas effective December 1, 2010, and Missouri effective May 4, 2011, for KCP&L and June 25, 2011, for GMO.  In 2010, electric utility recognized a $16.8 million pre-tax loss representing KCP&L’s and GMO’s combined share of construction costs for the Iatan No. 1 environmental equipment and the Iatan No. 2 construction project.
 
Great Plains Energy’s corporate and other activities loss from continuing operations increased $1.9 million in 2011 compared to 2010.
 
2010 compared to 2009
Great Plains Energy’s 2010 earnings available for common shareholders increased to $210.1 million, or $1.53 per share, from $148.5 million, or $1.14 per share in 2009.
 
Electric utility’s net income increased $77.5 million in 2010 compared to 2009 primarily driven by an increase in gross margin due to new retail rates and favorable weather.  Partially offsetting the increase in gross margin were higher operating and maintenance expenses driven by planned plant outages, increased depreciation and amortization expense due to additional regulatory amortization pursuant to KCP&L’s 2009 rate cases and depreciation from placing in service the Iatan No. 1 environmental equipment during 2009 and Iatan No. 2 during 2010 (Kansas jurisdiction only), increased general taxes and a decrease in the equity component of AFUDC.  Electric utility also recorded a $16.8 million pre-tax loss in 2010 representing KCP&L’s and GMO’s combined share of the impact of disallowed construction costs for the Iatan No. 1 environmental equipment and the Iatan No. 2 construction project.
 
Great Plains Energy’s corporate and other activities had an additional $17.4 million loss from continuing operations in 2010 compared to 2009 primarily due to $7.1 million of after-tax write downs of affordable housing investments and an additional $6.8 million of after-tax interest expense for Equity Units issued in 2009.  Additionally, 2009 reflects a $16.0 million tax benefit due to the settlement of GMO’s 2003-2004 tax audit.  Partially offsetting these items was the recognition of $3.9 million of deferred tax credits upon the sale of GMO’s former headquarters and $2.4 million of after-tax interest income, net of fees, from an interest refund from the IRS in 2010.
 
Gross Margin
Gross margin is a financial measure that is not calculated in accordance with GAAP.  Gross margin, as used by Great Plains Energy and KCP&L, is defined as operating revenues less fuel, purchased power and transmission of electricity by others.  Expenses for fuel, purchased power and transmission of electricity by others, offset by wholesale sales margin, are subject to recovery through cost adjustment mechanisms, except for KCP&L’s Missouri retail operations.  As a result, operating revenues increase or decrease in relation to a significant portion of these expenses.  Management believes that gross margin provides a more meaningful basis for evaluating electric utility’s operations across periods than operating revenues because gross margin excludes the revenue effect of fluctuations in these expenses.  Gross margin is used internally to measure performance against budget and in reports for management and the Board.  The Companies’ definition of gross margin may differ from similar terms used by other companies.
 
34
 
 
ELECTRIC UTILITY RESULTS OF OPERATIONS
 
The following table summarizes the electric utility segment results of operations.
             
 
2011
2010
2009
 
(millions)
Operating revenues
$ 2,318.0   $ 2,255.5   $ 1,965.0  
Fuel
  (483.8 )   (430.7 )   (405.5 )
Purchased power
  (203.4 )   (213.8 )   (183.7 )
Transmission of electricity by others
  (30.2 )   (27.4 )   (26.9 )
Gross margin (a)
  1,600.6     1,583.6     1,348.9  
Other operating expenses
  (828.7 )   (773.4 )   (712.0 )
Voluntary separation program
  (12.7 )   -     -  
Depreciation and amortization
  (273.1 )   (331.6 )   (302.2 )
Operating income
  486.1     478.6     334.7  
Non-operating income and expenses
  -     23.1     37.7  
Interest charges
  (176.9 )   (143.1 )   (151.0 )
Income tax expense
  (109.3 )   (123.3 )   (63.6 )
Net income
$ 199.9   $ 235.3   $ 157.8  
(a) Gross margin is a non-GAAP financial measure. See explanation of gross margin under Great
 
Plains Energy's Results of Operations.
             

Electric Utility Gross Margin and MWh Sales
The following tables summarize electric utility’s gross margin and MWhs sold.
                     
   
%
 
%
 
Gross Margin (a)
2011
Change
2010
Change
2009
Retail revenues
(millions)
Residential
$ 955.8     4   $ 915.8     19   $ 772.6  
Commercial
  878.8     5     838.0     11     752.5  
Industrial
  196.7     2     193.5     13     171.9  
Other retail revenues
  19.5     11     17.5     2     17.2  
Kansas property tax surcharge
  3.7  
NA
    -  
NA
    -  
Provision for rate refund
  (2.9 )   (23 )   (3.7 )
NA
    -  
Fuel recovery mechanism under recovery
  50.6     18     42.9     31     32.8  
Total retail
  2,102.2     5     2,004.0     15     1,747.0  
Wholesale revenues
  172.4     (16 )   205.9     18     174.6  
Other revenues
  43.4     (5 )   45.6     5     43.4  
Operating revenues
  2,318.0     3     2,255.5     15     1,965.0  
Fuel
  (483.8 )   12     (430.7 )   6     (405.5 )
Purchased power
  (203.4 )   (5 )   (213.8 )   16     (183.7 )
Transmission of electricity by others
  (30.2 )   10     (27.4 )   2     (26.9 )
Gross margin
$ 1,600.6     1   $ 1,583.6     17   $ 1,348.9  
(a) Gross margin is a non-GAAP financial measure. See explanation of gross margin under Great Plains
 
Energy's Results of Operations.
                             
 
35
 
 
                     
   
%
 
%
   
MWh Sales
2011
Change
2010
Change
2009
Retail MWh sales
(thousands)
Residential
  9,285     (2 )   9,459     9     8,647  
Commercial
  10,782     (2 )   10,950     3     10,637  
Industrial
  3,218     (2 )   3,286     5     3,143  
Other retail MWh sales
  119     8     111     (9 )   122  
Total retail
  23,404     (2 )   23,806     6     22,549  
Wholesale MWh sales
  5,491     (16 )   6,534     16     5,626  
Total MWh sales
  28,895     (5 )   30,340     8     28,175  
                               
 
Electric utility’s residential customers’ usage is significantly affected by weather.  Bulk power sales, the major component of wholesale sales, vary with system requirements, generating unit, purchased power and transmission availability, fuel costs, and requirements of other electric systems.  Electric utility’s revenues contain certain fuel recovery mechanisms as follows:
 
·  
KCP&L’s Kansas retail rates contain an Energy Cost Adjustment (ECA) tariff.  The ECA tariff reflects the projected annual amounts of fuel, purchased power, emission allowances, transmission costs and asset-based off-system sales margin.  These projected amounts are subject to quarterly re-forecasts.  Any difference between the ECA revenue collected and the actual ECA amounts for a given year (which may be positive or negative) is recorded as an increase to or reduction of retail revenues and deferred as a regulatory asset or liability to be recovered from or refunded to Kansas retail customers over twelve months beginning April 1 of the succeeding year.
 
·  
GMO’s electric retail rates contain a Fuel Adjustment Clause (FAC) tariff under which 95% of the difference between actual fuel cost, purchased power costs and off-system sales margin and the amount provided in base rates for these costs is passed along to GMO’s customers.  The FAC cycle consists of an accumulation period of six months beginning in June and December with FAC rate approval requested every six months for a twelve month recovery period.  The FAC is recorded as an increase to or reduction of retail revenues and deferred as a regulatory asset or liability to be recovered from or refunded to GMO’s electric retail customers.
 
·  
GMO’s steam rates contain a Quarterly Cost Adjustment (QCA) under which 85% of the difference between actual fuel costs and base fuel costs is passed along to GMO’s steam customers.  The QCA is recorded as an increase to or reduction of other revenues and deferred as a regulatory asset or liability to be recovered from or refunded to GMO’s steam customers.
 
KCP&L’s Missouri retail rates do not contain a fuel recovery mechanism, meaning that changes in fuel and purchased power costs will not be reflected in rates until new rates are authorized by the MPSC creating a regulatory lag between the time costs change and when they are reflected in rates.  This regulatory lag applies to all costs not included in fuel recovery mechanisms as described above.  In the current rising cost environment, regulatory lag can be expected to have an adverse impact, which could be material, on Great Plains Energy’s results of operations.  Additionally, KCP&L’s retail rates in Missouri reflect a set level of non-firm wholesale electric sales margin.  KCP&L will not recover any shortfall in non-firm wholesale electric sales margin from the level included in Missouri retail rates and any amount of margin above the level reflected in Missouri retail rates will be returned to KCP&L Missouri retail customers in a future rate case.
 
Electric utility’s gross margin increased $17.0 million in 2011 compared to 2010 primarily due to new retail rates effective December 1, 2010, and May 4, 2011, for KCP&L in Kansas and Missouri, respectively, and June 25, 2011, for GMO.  This increase was partially offset by:
 
·  
unfavorable weather, with a 6% decrease in cooling degree days;
 
36
 
 
·  
a decrease in weather-normalized retail demand;
 
·  
a $7.5 million increase in coal transportation costs not recovered in KCP&L’s Missouri retail rates where there is no fuel recovery mechanism, prior to new retail rates effective May 4, 2011;
 
·  
an estimated $16 million impact of coal conservation activities due to flooding resulting in increased fuel expenses and purchased power expenses and reduced wholesale sales; and
 
·  
an estimated $11 million impact from an extended refueling outage at Wolf Creek, which resulted in less generation available for wholesale sales, increased fuel expense due to the use of more coal in the fuel mix, which has a higher cost compared to nuclear fuel, and increased purchased power expense due to an increase in MWhs purchased.  Wolf Creek’s latest refueling outage began on March 19, 2011, and included several increases in work scope that extended the outage.  Primary components of the increased work scope were related to inspection and repair of essential service water system piping, testing and replacement of underground high voltage cables, and a repair of a ground on the main generator rotor.  During the last week of June 2011 before the unit returned to full capacity, Wolf Creek had an unplanned outage related to one of two main feed pumps.  Wolf Creek returned to 100% capacity in early July 2011.
 
Electric utility’s gross margin increased $234.7 million in 2010 compared to 2009 primarily due to new retail rates effective August 1, 2009 and September 1, 2009, for Kansas and Missouri, respectively, and favorable weather.
 
Retail MWhs sold in 2010 increased due to favorable weather, with a 2% increase in heating degree days and a 56% increase in cooling degree days.  Cooling degree days were 23% above normal based on a 30-year average.  Wholesale MWhs sold increased due to a 9% increase in generation resulting in more MWhs available for sale, partially offset by the higher retail load requirements.  The increase in generation was primarily a result of Iatan No. 2 being placed in service during 2010 and Iatan No. 1 being off-line from January through mid-April 2009 to complete an environmental upgrade and unit overhaul, with the expenditures being capitalized and therefore not impacting operating and maintenance expenses.  The coal base load equivalent availability factor increased to 82% in 2010 compared to 79% for 2009.
 
The following table provides cooling degree days (CDD) and heating degree days (HDD) for the last three years at the Kansas City International Airport.  CDD and HDD are used to reflect the demand for energy to cool or heat homes and buildings.
                     
    %   %  
 
2011
Change
2010
Change
2009
                     
CDD
  1,598     (6 )   1,705     56     1,090  
                               
HDD
  5,220     1     5,160     2     5,069  
                               
                               
Electric Utility Other Operating Expenses (including utility operating and maintenance expenses, general taxes and other)
Electric utility’s other operating expenses increased $55.3 million in 2011 compared to 2010 primarily due to the following:
 
·  
a $23.4 million increase in plant operating and maintenance expenses primarily due to Iatan No. 2 expenses being recognized with Kansas and Missouri rates effective December 1, 2010, and May 4, 2011, respectively, for KCP&L and Missouri rates effective June 25, 2011, for GMO;
 
·  
a $13.1 million increase in general taxes driven by increased property taxes;
 
·  
a $13.1 million increase in pension expense corresponding to the resetting of pension trackers with the effective dates of new retail rates at KCP&L and GMO;
 
·  
a $6.8 million increase in amortization of regulatory assets pursuant to rate orders;
 
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·  
$3.3 million of expenses related to the impact of flooding; and
 
·  
as a result of disallowances in the 2011 MPSC rate orders, KCP&L and GMO recognized combined losses of $2.3 million for construction costs related to Iatan No. 2 and to the Iatan No. 1 environmental project in 2011.  KCP&L and GMO also recognized a $3.9 million loss for other disallowed costs in the MPSC rate orders.  In 2010, KCP&L and GMO recognized combined losses of $16.8 million for construction costs related to Iatan No. 2 and the Iatan No. 1 environmental project.
 
Electric utility’s other operating expenses increased $61.4 million in 2010 compared to 2009 primarily due to the following:
 
·  
a $17.8 million increase in plant operating and maintenance expenses primarily driven by planned plant outages, including the impact of outages in 2009 that included capitalizable improvements and therefore did not impact operating and maintenance expenses;
 
·  
a $14.8 million increase in general taxes driven by increased gross receipts taxes on increased retail revenues and increased property taxes; and
 
·  
a $5.4 million increase from the accounting effects of the 2010 KCC rate order.
 
These increases were partially offset by $7.5 million expensed in September 2009 after KCP&L exercised its option to terminate an agreement for the construction of a wind project.
 
Accounting rules state that when it becomes probable that part of the cost of a recently completed plant will be disallowed for rate-making purposes and a reasonable estimate of the amount of the disallowance can be made, the estimated amount of the probable disallowance shall be deducted from the reported cost of the plant and recognized as a loss.  As a result of disallowances in the 2010 KCC rate order, KCP&L recognized Kansas jurisdictional losses of $4.4 million for construction costs related to Iatan No. 2 and $2.0 million for construction costs related to the Iatan No. 1 environmental project.  Management determined it was probable that the MPSC would disallow these costs as well in KCP&L’s and GMO’s pending rate cases.  Therefore, KCP&L’s Missouri jurisdictional portion and GMO’s portion of these costs were recognized as a loss in addition to the KCP&L Kansas jurisdictional portion resulting in a $16.8 million pre-tax loss representing KCP&L’s and GMO’s combined share for construction costs incurred through December 31, 2010.
 
Electric Utility Voluntary Separation Program
In March 2011, Great Plains Energy announced an organizational realignment and voluntary separation program to assist in the management of overall costs within the level reflected in the Company’s retail electric rates and to enhance organizational efficiency.  Savings from the realignment process and voluntary separation program, including approximately $15 million in labor costs on an annual basis, are expected to partially offset projected cost increases.  Under the voluntary separation program, any non-union employee of the Company could voluntarily elect to separate from the Company and receive a severance payment equal to two weeks of salary for every year of employment, with a minimum severance payment equal to fourteen weeks of salary.  There were 140 employees that made such elections and the majority separated from the Company on April 30, 2011.  Electric utility recorded expense of $12.7 million related to this voluntary separation program reflecting severance and related payroll taxes provided by the Company to employees who elected to voluntarily separate from the Company.
 
Electric Utility Depreciation and Amortization
Electric utility’s depreciation and amortization costs decreased $58.5 million in 2011 compared to 2010 primarily due to a $32.7 million decrease attributable to lower depreciation rates for KCP&L and a $58.2 million decrease in regulatory amortization for KCP&L in Kansas and Missouri.  These decreases were partially offset by $13.0 million of depreciation for Iatan No. 2, as well as increased depreciation expense for other capital additions.
 
Electric utility’s depreciation and amortization costs increased $29.4 million in 2010 compared to 2009 primarily due to $14.4 million of additional regulatory amortization pursuant to KCP&L’s 2009 rate cases.  The remaining
 
38
 
 
increase was due to placing in service the Iatan No. 1 environmental equipment during 2009 and commencement of depreciation on Iatan No. 2 during 2010 (Kansas jurisdiction only), as well as increased depreciation expense for other capital additions.
 
Electric Utility Non-Operating Income and Expenses
Electric utility’s non-operating income and expenses decreased $23.1 million in 2011 compared to 2010 primarily due to a decrease in the equity component of AFUDC resulting from a lower average construction work in progress balance due to Iatan No. 2 being placed in service in the third quarter of 2010.

Electric utility’s non-operating income and expenses decreased $14.6 million in 2010 compared to 2009 primarily due to a decrease in the equity component of AFUDC resulting from a lower average construction work in progress balance due to KCP&L’s Comprehensive Energy Plan projects being placed in service.

Electric Utility Interest Charges
Electric utility’s interest charges increased $33.8 million in 2011 compared to 2010 primarily due to a $22.7 million decrease in the debt component of AFUDC resulting from a lower average construction work in progress balance due to Iatan No. 2 being placed in service in the third quarter of 2010, $21.9 million of interest on intercompany notes from Great Plains Energy to GMO issued in August 2010 and May 2011 and $5.9 million of interest on 5.30% Senior Notes issued in September 2011.  These items were partially offset by repayment of 7.95% Senior Notes, 7.75% Senior Notes and 6.50% Senior Notes in February 2011, June 2011 and November 2011, respectively.
 
Electric utility’s interest charges decreased $7.9 million in 2010 compared to 2009 primarily due to the deferral to a regulatory asset of construction accounting carrying costs for Iatan No. 1, Iatan No. 2 and common facilities and the maturity of $68.5 million of 7.625% Senior Notes in December 2009.  These decreases were partially offset by a decrease in the debt component of AFUDC resulting from a lower average construction work in progress balance due to KCP&L’s Comprehensive Energy Plan projects being placed in service, interest for a full year on $400.0 million of 7.15% Mortgage Bonds Series 2009A issued in March 2009 and interest on an intercompany note from Great Plains Energy to GMO issued in August 2010.
 
Electric Utility Income Tax Expense
Electric utility’s income tax expense decreased $14.0 million in 2011 primarily due to decreased pre-tax income.
 
Electric utility’s income tax expense increased $59.7 million in 2010 compared to 2009 due to increased pre-tax income and a $2.8 million increase in income tax expense for the cumulative change in tax treatment of the Medicare Part D subsidy under the Federal health care reform legislation signed into law in 2010.
 
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GREAT PLAINS ENERGY SIGNIFICANT BALANCE SHEET CHANGES
(December 31, 2011 compared to December 31, 2010)
 
·  
Great Plains Energy’s deferred refueling outage costs increased $17.9 million due to the deferral of costs for the Wolf Creek refueling outage that began on March 19, 2011, and included several increases in work scope that extended the outage.  These deferred costs will be amortized over the months prior to the next refueling outage currently scheduled for the fall of 2012.
 
·  
Great Plains Energy’s deferred income taxes – current assets decreased $6.8 million primarily due to increased temporary differences resulting from increased deferred refueling outage costs.
 
·  
Great Plains Energy’s current maturities of long-term debt increased $315.7 million due to reclassification of $287.5 million of Great Plains Energy’s 10.00% Equity Units subordinated notes and $500.0 million of GMO’s 11.875% Senior Notes from long-term debt, partially offset by the repayment of $137.3 million and $197.0 million of GMO’s 7.95% and 7.75% Senior Notes, respectively, and repayment of KCP&L’s $150.0 million of 6.50% Senior Notes at maturity.
 
·  
Great Plains Energy’s derivative instruments – current liabilities decreased $20.8 million due to the settlement of Forward Starting Swaps (FSS) upon the issuance of Great Plains Energy’s $350.0 million of 4.85% Senior Notes.
 
·  
Great Plains Energy’s deferred income taxes – deferred credits and other liabilities increased $110.3 million primarily due to a $233.3 million increase in temporary differences mostly as a result of bonus depreciation partially offset by net operating losses created.
 
·  
Great Plains Energy’s other deferred credits and other liabilities decreased $28.3 million primarily due to a decrease in unrecognized tax benefits related to the settlement of the IRS audit for Great Plains Energy’s 2006-2008 tax years.
 
·  
Great Plains Energy’s long-term debt decreased $200.4 million primarily due to reclassification of $287.5 million of Great Plains Energy’s 10.00% Equity Units Subordinated Notes and $500.0 million of GMO’s 11.875% Senior Notes to current maturities and the purchase in lieu of redemption of $112.8 million of KCP&L’s EIRR bonds, offset by Great Plains Energy’s issuance of $350.0 million of 4.85% Senior Notes in May 2011 and KCP&L’s issuance of $400.0 million of 5.30% Senior Notes in September 2011.
 
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CAPITAL REQUIREMENTS AND LIQUIDITY
 
Great Plains Energy operates through its subsidiaries and has no material assets other than the stock of its subsidiaries.  Great Plains Energy’s ability to make payments on its debt securities and its ability to pay dividends is dependent on its receipt of dividends or other distributions from its subsidiaries, proceeds from the issuance of its securities and borrowing under its revolving credit facility.
 
Great Plains Energy’s capital requirements are principally comprised of debt maturities and electric utility’s construction and other capital expenditures.  These items as well as additional cash and capital requirements are discussed below.
 
Great Plains Energy's liquid resources at December 31, 2011, consisted of $6.2 million of cash and cash equivalents on hand and $929.7 million of unused bank lines of credit.  The unused lines consisted of $166.4 million from Great Plains Energy's revolving credit facility, $366.5 million from KCP&L's credit facilities and $396.8 million from GMO’s revolving credit facility.  See Note 10 to the consolidated financial statements for more information on these credit facilities.  Generally, Great Plains Energy uses these liquid resources to meet its day-to-day cash flow requirements, and from time to time issues equity and/or long-term debt to repay short-term debt or increase cash balances.
 
Great Plains Energy intends to meet day-to-day cash flow requirements including interest payments, retirement of maturing debt, construction requirements, dividends and pension benefit plan funding requirements with a combination of internally generated funds and proceeds from the issuance of equity securities, equity-linked securities and/or short-term and long-term debt.  Great Plains Energy’s intention to meet a portion of these requirements with internally generated funds may be impacted by the effect of inflation on operating expenses, the level of MWh sales, regulatory actions, compliance with environmental regulations and the availability of generating units.  In addition, Great Plains Energy may issue equity, equity-linked securities and/or debt to finance growth.
 
At December 31, 2011, Great Plains Energy’s current maturities of long-term debt were $801.4 million.  In January 2012, KCP&L repaid $12.4 million of 4.00% EIRR bonds at maturity.  Great Plains Energy’s $287.5 million of Equity Units subordinated notes mature in 2042 but must be remarketed by June 12, 2012.  GMO’s $500.0 million of 11.875% Senior Notes mature in July 2012 and Great Plains Energy is evaluating alternatives to refinance this long-term debt.  Based on current market conditions and Great Plains Energy’s unused bank lines of credit, Great Plains Energy expects to have the ability to access the markets to complete the necessary refinancing.
 
Cash Flows from Operating Activities
Great Plains Energy generated positive cash flows from operating activities for the periods presented.  The decrease in cash flows from operating activities for Great Plains Energy in 2011 compared to 2010 is primarily due to a reduction in net income, the payment of $26.1 million for the settlement of FSS upon the issuance of $350.0 million of 4.85% Senior Notes in May 2011, an increase in pension and postretirement benefit funding and an increase in deferred refueling outage costs, partially offset by the adoption of new accounting rules in 2010.  On January 1, 2010, Great Plains Energy adopted new accounting rules for transfers of financial assets, which resulted in the recognition of $95.0 million of accounts receivable pledged as collateral and a corresponding short-term collateralized note payable on Great Plains Energy’s balance sheet at December 31, 2010.  See Note 3 for additional information.  As a result, cash flows from operating activities were reduced by $95.0 million and cash flows from financing activities were raised by $95.0 million with no impact to the net change in cash in 2010.
 
The increase in cash flows from operating activities for Great Plains Energy in 2010 compared to 2009 is primarily due to an increase in net income, an increase in deferred income taxes from utilizing bonus depreciation, which defers the cash payment for taxes on current year income, and a decrease in cash flows for accounts payable due to the completion of significant construction projects.  Cash flows from operating activities were reduced by $95.0 million and cash flow from financing activities were raised by $95.0 million with no impact to
 
41
 
 
the net change in cash in 2010 from the adoption of new accounting rules for transfers of financial assets as discussed above.  Additionally, cash flows from operating activities in 2009 reflect the payment of $79.1 million for the settlement of FSS upon the issuance of $400.0 million of 7.15% Mortgage Bonds Series 2009A.
 
Other changes in working capital are detailed in Note 2 to the consolidated financial statements.  The individual components of working capital vary with normal business cycles and operations.
 
Cash Flows from Investing Activities
Great Plains Energy’s cash used for investing activities varies with the timing of utility capital expenditures and purchases of investments and nonutility property.  Investing activities are offset by the proceeds from the sale of properties and insurance recoveries.
 
Great Plains Energy’s utility capital expenditures decreased $161.4 million in 2011 compared to 2010 due to a decrease in cash utility capital expenditures primarily related to Iatan No. 2.
 
Great Plains Energy’s utility capital expenditures decreased $223.1 million in 2010 compared to 2009 due to a decrease in cash utility capital expenditures primarily related to the Iatan No. 1 environmental project, Iatan No. 2 and Spearville 2 Wind Energy Facility.
 
Cash Flows from Financing Activities
Great Plains Energy’s cash flows from financing activities in 2011 reflect the issuance, at a discount, of $350.0 million of 4.85% Senior Notes that mature in 2021.  Great Plains Energy used the proceeds to make a ten-year intercompany loan to GMO with GMO using the proceeds to repay $137.3 million of 7.95% Senior Notes and $197.0 million of 7.75% Senior Notes at maturity.  KCP&L purchased in lieu of redemption its $63.3 million EIRR Series 2007A-1, $10.0 million EIRR Series 2007A-2 and $39.5 million EIRR Series 1993B bonds.  Also reflected is KCP&L’s issuance, at a discount, of $400.0 million of 5.30% Senior Notes that mature in 2041.  KCP&L used the proceeds to repay short-term borrowings and its $150.0 million of 6.50% Senior Notes at maturity.
 
Great Plains Energy’s cash flows from financing activities in 2010 reflect the issuance, at a discount, of $250.0 million of 2.75% Senior Notes that mature in 2013.  Great Plains Energy used the proceeds to make a three-year intercompany loan to GMO with GMO using the proceeds to repay short-term borrowings.  Also reflected is the $95.0 million impact of the short-term collateralized note payable described above under cash flows from operating activities.
 
Great Plains Energy’s cash flows from financing activities in 2009 reflect gross proceeds of $161.0 million from the issuance of 11.5 million shares of common stock at $14.00 per share and gross proceeds of $287.5 million from the issuance of 5.8 million Equity Units.  See Note 11 to the consolidated financial statements for more information on the Equity Units.  Also reflected in the cash flows from financing activities in 2009 is KCP&L’s issuance, at a discount, of $400.0 million of Mortgage Bonds Series 2009A that mature in 2019.  Additionally, Great Plains Energy sold 3.8 million shares of common stock for $50.0 million in gross proceeds under a Sales Agency Financing Agreement with BNY Mellon Capital Markets, LLC (BNYMCM).  Great Plains Energy paid $22.8 million in 2009 for fees related to all issuances of debt and common stock.  The proceeds from these issuances were used primarily to repay short-term borrowings.
 
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Impact of Credit Ratings on Liquidity
The ratings of Great Plains Energy’s, KCP&L’s and GMO’s securities by the credit rating agencies impact their liquidity, including the cost of borrowings under their revolving credit agreements and in the capital markets.  The Companies view maintenance of strong credit ratings as extremely important to their access to and cost of debt financing and to that end maintain an active and ongoing dialogue with the agencies with respect to results of operations, financial position, and future prospects.  While a decrease in these credit ratings would not cause any acceleration of Great Plains Energy’s, KCP&L’s or GMO’s debt, it could increase interest charges under Great Plains Energy’s 6.875% Senior Notes due 2017, GMO’s 11.875% Senior Notes due 2012, and Great Plains Energy’s, KCP&L’s and GMO’s revolving credit agreements.  A decrease in credit ratings could also have, among other things, an adverse impact, which could be material, on Great Plains Energy’s, KCP&L’s and GMO’s access to capital, the cost of funds, the ability to recover actual interest costs in state regulatory proceedings, the type and amounts of collateral required under supply agreements and Great Plains Energy’s ability to provide credit support for its subsidiaries.
 
At December 31, 2011, the major credit rating agencies rated Great Plains Energy’s and KCP&L’s securities as detailed in the following table.
       
 
Moody's
 
Standard
 
Investors Service
 
& Poor's
Great Plains Energy
     
Outlook
Stable
 
Stable
Corporate Credit Rating
-
 
BBB
Preferred Stock
Ba2
 
BB+
Senior Unsecured Debt
Baa3
 
BBB-
       
KCP&L
     
Outlook
Stable
 
Stable
Senior Secured Debt
A3
 
BBB+
Senior Unsecured Debt
Baa2
 
BBB
Commercial Paper
P-2
 
A-2
       
GMO
     
Outlook
Stable
 
Stable
Senior Unsecured Debt (a)
Baa3
 
BBB
Commercial Paper (a)
P-3
 
A-2
(a) reflects Great Plains Energy guarantee
   

A securities rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the assigning rating agency.
 
Financing Authorization
Under stipulations with the MPSC and KCC, Great Plains Energy and KCP&L maintain common equity at not less than 30% and 35%, respectively, of total capitalization (including only the amount of short-term debt in excess of the amount of construction work in progress).  KCP&L’s long-term financing activities are subject to the authorization of the MPSC.  In March 2010, the MPSC authorized KCP&L to issue up to $450.0 million of long-term debt and to enter into interest rate hedging instruments in connection with such debt through December 31, 2011.  KCP&L utilized $400.0 million of this amount with the issuance in September 2011 of 5.30% unsecured Senior Notes maturing in 2041.  In December 2011, KCP&L filed a request with the MPSC for authorization to issue up to $300.0 million of long-term debt and enter into interest rate hedging instruments in connection with such debt through December 31, 2013.  This authorization would replace the authorization which expired on December 31, 2011.
 
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In December 2010, FERC authorized KCP&L to have outstanding at any time up to a total of $1.0 billion in short-term debt instruments through December 2012, conditioned on KCP&L’s borrowing costs not exceeding the greater of: (i) 4.25% over LIBOR; (ii) the greater of 2.25% over the prime rate, 2.75% over the federal funds rate, and 3.25% over LIBOR; or (iii) 4.25% over the A2/P-2 nonfinancial commercial paper rate most recently published by the Federal Reserve at the time of the borrowing.  The authorization is subject to four restrictions: (i) proceeds of debt backed by utility assets must be used for utility purposes; (ii) if any utility assets that secure authorized debt are divested or spun off, the debt must follow the assets and also be divested or spun off; (iii) if any proceeds of the authorized debt are used for non-utility purposes, the debt must follow the non-utility assets (specifically, if the non-utility assets are divested or spun off, then a proportionate share of the debt must follow the divested or spun off non-utility assets); and (iv) if utility assets financed by the authorized short-term debt are divested or spun off to another entity, a proportionate share of the debt must also be divested or spun off.  At December 31, 2011, there was $773.0 million available under this authorization.
 
In March 2010, and modified in April 2010, FERC authorized GMO to have outstanding at any time up to a total of $500.0 million in short-term debt instruments through March 2012, conditioned on GMO’s borrowing costs not exceeding 4.3% over LIBOR, the prime rate or federal funds rate, as applicable, and subject to the same four restrictions as the KCP&L FERC short-term authorization discussed in the preceding paragraph.  At December 31, 2011, there was $460.0 million available under this authorization.  In January 2012, FERC authorized GMO to have outstanding at any time up to a total of $750.0 million in short-term debt instruments through March 2014, conditioned on GMO’s borrowing costs not exceeding the greater of 2.25% over LIBOR or 1.75% over the prime rate or federal funds rate, as applicable, and subject to the same four restrictions as the KCP&L FERC short-term authorization discussed in the preceding paragraph.  This authorization will become effective and replace the current authorization when it expires in March 2012.
 
In November 2011, FERC authorized GMO to issue up to a total of $850.0 million of long-term debt through December 2013.  At December 31, 2011, there was $850.0 million available under this authorization.
 
KCP&L and GMO are also authorized by FERC to participate in the Great Plains Energy money pool, an internal financing arrangement in which funds may be lent on a short-term basis to KCP&L and GMO.  At December 31, 2011, KCP&L had an outstanding payable under the money pool of $8.5 million to Great Plains Energy.
 
Significant Financing Activities
Great Plains Energy
Great Plains Energy has an effective shelf registration statement for the sale of unspecified amounts of securities with the SEC that was filed and became effective in May 2009 and expects to file a new shelf registration statement prior to the May 2012 expiration of its current one.
 
In May 2011, Great Plains Energy issued $350.0 million of 4.85% unsecured Senior Notes, maturing in 2021.  Great Plains Energy settled six FSS simultaneously with the issuance of the debt and paid $26.1 million in cash for the settlement.
 
In August 2010, Great Plains Energy issued $250.0 million of 2.75% Senior Notes, maturing in 2013.  Great Plains Energy settled two FSS simultaneously with the issuance of the three-year long-term debt and paid $6.9 million in cash for the settlement.
 
In May 2009, Great Plains Energy issued 11.5 million shares of common stock at $14.00 per share with $161.0 million in gross proceeds and 5.8 million Equity Units with gross proceeds of $287.5 million.  See Note 11 to the consolidated financial statements for additional information on the Equity Units.
 
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KCP&L
KCP&L has an effective shelf registration statement providing for the sale of unspecified amounts of investment grade notes and general mortgage bonds with the SEC that was filed and became effective in May 2009 and expects to file a new shelf registration statement prior to the May 2012 expiration of its current one.
 
In September 2011, KCP&L issued $400.0 million of 5.30% unsecured Senior Notes, maturing in 2041.
 
In March 2009, KCP&L issued $400.0 million of 7.15% Mortgage Bonds Series 2009A, maturing in 2019.  KCP&L settled FSS simultaneously with the issuance of its $400.0 million 10-year long-term debt and paid $79.1 million in cash for the settlement.
 
Debt Agreements
See Note 10 to the consolidated financial statements for information regarding revolving credit facilities.

Projected Utility Capital Expenditures
Great Plains Energy’s cash utility capital expenditures, excluding AFUDC to finance construction, were $456.6 million, $618.0 million and $841.1 million in 2011, 2010 and 2009, respectively.  Utility capital expenditures projected for the next three years, excluding AFUDC, are detailed in the following table.  This utility capital expenditure plan is subject to continual review and change.
             
 
2012
2013
2014
 
(millions)
Generating facilities
$ 202.4   $ 245.6   $ 229.6  
Distribution and transmission facilities (a)
  186.4     212.0     185.8  
SPP balanced portfolio and priority transmission projects
  4.2     42.2     70.9  
General facilities
  42.1     53.8     34.6  
Nuclear fuel
  20.8     40.1     25.3  
Environmental
  178.1     189.3     127.3  
Total utility capital expenditures
$ 634.0   $ 783.0   $ 673.5  
(a) Excludes SPP balanced portfolio and priority transmission projects
                 
 
Pensions
The Company maintains defined benefit plans for substantially all active and inactive employees of KCP&L, GMO and WCNOC and incurs significant costs in providing the plans.  Funding of the plans follows legal and regulatory requirements with funding equaling or exceeding the minimum requirements of the Employee Retirement Income Security Act of 1974, as amended (ERISA).
 
In 2011 and 2010, the Company contributed $128.8 million and $64.5 million to the pension plans, respectively, and in 2012 the Company expects to contribute $94.5 million to the plans to satisfy the ERISA funding requirements and the MPSC and KCC rate orders, with the majority paid by KCP&L.  Additional contributions to the plans are expected beyond 2012 in amounts at least sufficient to meet the greater of ERISA or regulatory funding requirements; however, these amounts have not yet been determined.
 
Additionally, the Company provides post-retirement health and life insurance benefits for certain retired employees and expects to make benefit contributions of $16.7 million under the provisions of these plans in 2012, with the majority paid by KCP&L.
 
Management believes the Company has adequate access to capital resources through cash flows from operations or through existing lines of credit to support these funding requirements.
 
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Supplemental Capital Requirements and Liquidity Information
The information in the following table is provided to summarize Great Plains Energy’s cash obligations and commercial commitments.
                               
Payment due by period
2012
2013
2014
2015
2016
After 2016
Total
Long-term debt
(millions)
 
Principal
$ 801.4   $ 263.1   $ 1.5   $ 15.5   $ 1.6   $ 2,449.2   $ 3,532.3  
 
Interest
  242.1     182.3     160.4     145.6     145.2     1,215.5     2,091.1  
Lease commitments
                                         
 
Operating lease
  19.7     16.3     14.8     13.6     9.8     119.2     193.4  
 
Capital lease
  0.4     0.4     0.4     0.4     0.4     4.7     6.7  
Pension and other post-retirement plans (a)
  111.2     111.2     111.2     111.2     111.2     N/A     556.0  
Purchase commitments
                                         
 
Fuel
  397.4     360.5     202.0     103.9     83.2     94.1     1,241.1  
 
Power
  8.5     29.2     34.8     34.8     34.8     686.3     828.4  
 
Capacity
  13.4     12.4     4.5     4.2     2.4     -     36.9  
 
La Cygne environmental project
  376.6     300.2     125.4     5.5     -     -     807.7  
 
Non-regulated natural gas
                                         
 
transportation
  2.8     3.6     3.6     3.6     3.6     0.9     18.1  
 
Other
  54.4     101.7     21.0     25.4     3.7     49.8     256.0  
Total contractual commitments (a)
$ 2,027.9   $ 1,380.9   $ 679.6   $ 463.7   $ 395.9   $
4,619.7
  $ 9,567.7  
(a)
The Company expects to make contributions to the pension and other post-retirement plans beyond 2012 but the amounts
 
 
are not yet determined. Amounts for years after 2012 are estimates based on information available in determining the amount
 
 
for 2012. Actual amounts for years after 2012 could be significantly different than the estimated amounts in the table above.
 

Long-term debt includes current maturities.  Long-term debt principal excludes $4.9 million of discounts on senior notes.  Variable rate interest obligations are based on rates as of December 31, 2011.  Equity Units subordinated notes totaling $287.5 million mature in 2042 but must be remarketed by June 12, 2012.  In connection with a successful remarketing of the notes, Great Plains Energy may elect, without the consent of any of the holders, to modify the notes’ stated maturity to any date on or after June 15, 2014 and earlier than June 15, 2042.  If the notes have not been successfully remarketed by June 12, 2012, the holders of all notes will have the right to put their notes to Great Plains Energy on June 15, 2012, in payment of the associated common stock purchase contracts and Great Plains Energy will issue to the holders newly issued shares of the Company’s common stock.  Interest on the Equity Units subordinated notes is included up to June 15, 2014.  See Note 11 to the consolidated financial statements for additional information.
 
Great Plains Energy has expected sublease income of $1.2 million for the years 2012-2013.  Lease commitments end in 2048 and include capital and operating lease obligations.  Lease obligations also include railcars to serve jointly-owned generating units where KCP&L is the managing partner.  Of the amounts included in the table above, KCP&L will be reimbursed by the other owners for approximately $2.2 million per year from 2012 to 2015 and then $0.4 million per year from 2016 to 2025, for a total of $13.0 million.
 
The Company expects to contribute $111.2 million to the pension and other post-retirement plans in 2012, of which the majority is expected to be paid by KCP&L.  Additional contributions to the plans are expected beyond 2012 in amounts at least sufficient to meet the greater of ERISA or regulatory funding requirements; however, these amounts have not yet been determined.  Amounts for years after 2012 are estimates based on information available in determining the amount for 2012.  Actual amounts for years after 2012 could be significantly different than the estimated amounts in the table above.
 
Fuel commitments consist of commitments for nuclear fuel, coal and coal transportation costs.  Power commitments consist of commitments for renewable energy under power purchase agreements.  KCP&L and GMO purchase capacity from other utilities and nonutility suppliers.  Purchasing capacity provides the option to
 
46
 
 
purchase energy if needed or when market prices are favorable.  KCP&L has capacity sales agreements not included above that total $3.8 million for 2012 and $1.6 million for 2013.  La Cygne environmental project represents contractual commitments related to environmental upgrades at KCP&L’s La Cygne station.  KCP&L owns 50% of the La Cygne station and expects to be reimbursed by the other owner for its 50% share of the costs.  Non-regulated natural gas transportation consists of MPS Merchant’s commitments.  Other represents individual commitments entered into in the ordinary course of business.
 
At December 31, 2011, the total liability for unrecognized tax benefits for Great Plains Energy was $24.0 million, which is not included in the table above.  Great Plains Energy is unable to determine reasonably reliable estimates of the period of cash settlement with the respective taxing authorities.  See Note 20 to the consolidated financial statements for information regarding the recognition of tax benefits in the next twelve months, which is not expected to have a cash impact.
 
Great Plains Energy has other insignificant long-term liabilities recorded on its consolidated balance sheet at December 31, 2011, which do not have a definitive cash payout date and are not included in the table above.
 
Off-Balance Sheet Arrangements
In the ordinary course of business, Great Plains Energy and certain of its subsidiaries enter into various agreements providing financial or performance assurance to third parties on behalf of certain subsidiaries.  Such agreements include, for example, guarantees and letters of credit.  These agreements are entered into primarily to support or enhance the creditworthiness otherwise attributed to a subsidiary on a stand-alone basis, thereby facilitating the extension of sufficient credit to accomplish the subsidiaries’ intended business purposes.  The majority of these agreements guarantee the Company’s own future performance, so a liability for the fair value of the obligation is not recorded.
 
At December 31, 2011, Great Plains Energy has provided $666.0 million of credit support for GMO as follows:
 
·  
Great Plains Energy direct guarantees to GMO counterparties totaling $40.7 million, which expire in 2012,
 
·  
Great Plains Energy letters of credit to GMO counterparties totaling $11.6 million , which expire in 2012, and
 
·  
Great Plains Energy guarantees of GMO long-term debt totaling $613.7 million, which includes debt with maturity dates ranging from 2012-2023.

Great Plains Energy has also guaranteed GMO’s $450 million revolving line of credit with a group of banks as amended December 2011 and expiring in December 2016.  At December 31, 2011, GMO had $40.0 million of commercial paper outstanding, had issued letters of credit totaling $13.2 million and had no outstanding cash borrowings under this credit facility.
 
None of the guaranteed obligations are subject to default or prepayment as a result of a downgrade of GMO’s credit ratings, although such a downgrade has in the past, and could in the future, increase interest charges under GMO’s 11.875% Senior Notes due 2012 and revolving line of credit.
 
At December 31, 2011, KCP&L had issued letters of credit totaling $21.5 million as credit support to certain counterparties.
 
KCP&L has bond insurance policies for its secured 1992 Series EIRR bonds totaling $31.0 million, Series 1993A bonds totaling $40.0 million, EIRR Bond Series 2005 totaling $85.9 million and EIRR Bonds Series 2007B totaling $73.2 million.  The insurance agreement between KCP&L and the issuer of the bond insurance policies provides for reimbursement by KCP&L for any amounts the insurer pays under the bond insurance policies.  As the insurers’ credit ratings are below KCP&L’s credit ratings, the bonds are rated at KCP&L’s credit ratings.
 
47
 
 
KANSAS CITY POWER & LIGHT COMPANY
 
MANAGEMENT’S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS
 
The following table summarizes KCP&L's consolidated comparative results of operations.
             
 
2011
2010
2009
 
(millions)
Operating revenues
$ 1,558.3   $ 1,517.1   $ 1,318.2  
Fuel
  (333.5 )   (278.8 )   (251.3 )
Purchased power
  (70.8 )   (78.9 )   (70.8 )
Transmission of electricity by others
  (18.8 )   (15.0 )   (12.3 )
Gross margin (a)
  1,135.2     1,144.4     983.8  
Other operating expenses
  (611.7 )   (576.6 )   (522.0 )
Voluntary separation program
  (9.2 )   -     -  
Depreciation and amortization
  (193.1 )   (256.4 )   (229.6 )
Operating income
  321.2     311.4     232.2  
Non-operating income and expenses
  (1.0 )   19.1     28.5  
Interest charges
  (115.6 )   (85.7 )   (84.9 )
Income tax expense
  (69.1 )   (81.6 )   (46.9 )
Net income
$ 135.5   $ 163.2   $ 128.9  
(a) Gross margin is a non-GAAP financial measure. See explanation of gross margin under Great
 
Plains Energy's Results of Operations.
             

KCP&L Gross Margin and MWh Sales
The following tables summarize KCP&L’s gross margin and MWhs sold.
                     
   
%
 
%
 
Gross Margin (a)
2011
Change
2010
Change
2009
Retail revenues
(millions)
Residential
$ 593.0     5   $ 564.5     20   $ 472.2  
Commercial
  637.8     6     604.3     11     542.7  
Industrial
  121.9     (1 )   122.8     13